Nowadays Indian investment market is flooded with a plethora of Fixed Deposit (FD) schemes. In the rising interest rate scenario, the companies are trying to woo investors with different offerings. While some offerings are really attractive and beneficial to the investors, not every feature is as good as it looks. Investors should enter with caution and due diligence. Here are some tips before you decide to invest in any Fixed Deposit.
The primary objective of investing in Fixed Deposit is the safety net it offers regarding capital protection and fixed income. The interest rates in banks are too low, and NBFC Fixed deposit needs careful selection. Fortunately, NBFC fixed deposits are rated on the scale of AAA to D for the credit quality. The independent agencies like CRISIL and ICRA rate the fixed deposit offered by NBFCs. If the fixed deposit is not top rated or un-rated, consider skipping the same. Your hard earned money is not worth to unreliable deposit.
On the other hand, some fixed deposits are top rated by both independent agencies. Bajaj Finance is such a gem in the jungle of Fixed Deposit schemes. CRISIL has rated its deposit as FAAA that is the highest possible rating, indicating the very strong possibility. ICRA rated it MAAA, indicating highest credit quality and lowest risk. You can earn a higher interest rate than bank fixed deposit and also avail “bank-like” safety net for your investment.
Invest in a Staggered Manner
It is beyond doubt that top-rated Company Fixed Deposit helps you to earn a higher interest rate and build the corpus for your life. However, since the interest rate is on the rise now, it is not prudent to lock all your money at the current interest rate. On the other hand, if you wait in anticipation of the higher interest rate in future, you may lose the interest earning of the current period. The best way to get the maximum advantage of both the situation is to strike the correct balance between the two. You can invest the part of your money for now and wait for a month or so for your next investment. For example, if you want to invest INR 2 Lacs in fixed deposit, you can invest INR 1 Lacs now and invest INR 1 Lacs after one month. In such a way, you can optimize your return from the fixed deposit investment. You can also use online FD calculator to reckon the interest amount in each option precisely and strategise your investment to your advantage.
Decide Duration that Suits You
Usually, the company deposits pay higher FD interest rates for a longer duration. However, there is no point in investing in 10-year bank FD when you know you will need money for social function after three years. While everything in life cannot be planned, it is recommended to match the duration of your FD with the future need as far as you know it. If you do not do so, you will end up availing expensive loans and hence wiping off interest benefit you earned. Consider investing in the Fixed Deposit scheme that gives you a variety of options to match your desired duration. Usually, one year to three years is the ideal investment duration for the majority of the investors of fixed deposit.
Pick Up Cumulative Deposit for Growth
If you are a young person and having salary income or other regular income, consider investing for growth. You may not need monthly interest income. Such an income may go on discretionary expenses. In growth-oriented deposit, also known as a cumulative deposit, you can take advantage of the power of compounding. After every three months, earned interest is added back to the principal amount. You can use online FD Calculators to know the power of compounding.
Pick Up Non-Cumulative Deposit for Income
If you are a retired person or in need have regular interest income, consider investing in non-cumulative type fixed deposit. Although the interest rate could be slightly lower, it doesn’t matter when your purpose of regular income is served. You can choose monthly, bi-monthly, quarterly, half-yearly or yearly interest income. The correct choice depends on your need and suitability to plan the expenses.