Before we begin discussing why FDs are a good investment option in India, let’s first look at the mindset of the Indian investors.
- India is a developing country with limited incomes. Even though pay packages have increased overall, adding to the upturn the inflation has been higher. Additionally, many people continue to earn enough to meet the rising basic expenses of food, clothing, shelter and education. Most of them thus are wary and look for safe investment options.
- Traditionally, Indian investors are also labelled conservative. They are not averse to risks but will take calculated risks, which give them the highest returns on their investment. It is only after the economy opened up in the last decade of the previous century that Indians began to investigate riskier investment options. But, wealth and fund managers always advised investing a part of their income and extra funds into fixed deposits.
Thus, Fixed Deposits are not a good but an excellent option in India. Here are the reasons why:
- They give an assured return – Once you deposit your money in bank FD, you are assured of a certain sum that you will get at the end of the tenure.
Let’s understand this with an example
Principal Amount: Rs 10,000
Tenure: 3 years
At the end of the first year
Principal Amount: Rs. 10,000
Interest earned: 7% of 10,000 = Rs. 700
Total FD Amount Rs 10,700.
At the end of the second year
Principal Amount: Rs. 10,700
Interest earned: 7% of 10,700 = Rs. 750
Total FD Amount: Rs 11,450:
At the end of the third year
Principal Amount: Rs. 11,470
Interest earned: 7% of 11,470 = Rs. 801
Total FD Amount: Rs 11,470 = Rs. 12,271
So, at the end of the tenure, you will get your principal amount Rs. 10,000 and earn an interest of Rs. 2,271.
NOTE: The above example is just an approximation. Always use an FD rate calculator or consult a customer care executive at the bank to know the exact amount of interest earned.
- They are safe: FDs are one of the safest investment options to choose from because the interest you earn at the end of the tenure will not change. There may be economic downturns in the market, but it will not affect the FD rates in India or the final return on investment. As shown in the example above, you earn Rs. 2,271 at the end of the tenure.
- You can set up an income with the returns: People with limited or no source of income can benefit from an FD. The interest earned is used as a source of income. Instead of adding the interest back to the principal amount, it can be used for meeting basic expenditures. Many banks give the option of monthly, quarterly, half-yearly and annual interest earned.
Though fixed deposits are one of the safest investment options, you should do your due diligence to get the highest FD rates in India and maximize your return on investment.