Fixed deposits were once the default investment instruments for most Indians. Today, even though other asset classes have entered the mix, FDs still continue to be favoured by most. But, should you rely only on FDs , especially if you’re investing with the view of creating wealth for retirement? Read on to find out.
Advantages and limitations of FDs:
Fixed deposits are an excellent investment as they are not linked to market forces and offer assured returns. Besides, you can choose a tenor of your choice and even use your FD as collateral to take a loan from the financial institution. Also, you can choose an interest payout of your convenience. Pick a cumulative interest rate if you are looking to grow your wealth over a long tenor, or choose a non-cumulative interest to enjoy regular payouts.
On the flip side, fixed deposits have certain drawbacks too. For instance, you can withdraw your funds at a moment’s notice, but you will have to pay a penalty if you withdraw funds before the term of the fixed deposit is over. You might also earn a lower rate of interest than other, more risky forms of investment.
Inflation and taxation:
Income earned from your fixed deposit is subject to taxation. If your interest income from FDs exceeds Rs.10, 000, it will be taxed as per the tax bracket you fall under. Moreover, to truly profit from fixed deposits, you must ensure that the rate of interest is higher than the average rate of inflation, after deduction of taxes. Only then will you be able to benefit from this investment. So, be sure to pick the right fixed deposit when you’re looking to invest for an early retirement.
When you take a Fixed Deposit from Bajaj Finance, you can enjoy several benefits, including a higher FD Interest Rates ranging from 7.85% to 8.10%. With ICRA’s MAAA rating and CRISIL’s FAAA rating, you only have to deposit Rs.25, 000 to start a fixed deposit.
Considering other stable saving instruments:
There is no denying that FDs are better at providing guaranteed returns and a safe haven for your principal as compared to many other investments. Whether you choose bank or company FDs, you can rest assured that your savings are in good hands.
However, you can consider other stable alternatives as well to diversify your portfolio and maximise returns for an early retirement. You can look into investing in a Public Provident Fund, Post Office Monthly Income Scheme, or invest in tax-free bonds.
Should stability alone be the concern?
A marginal increase or decrease in interest rates will not affect the stability of your long-term FD, but this shouldn’t be the deciding factor when you invest with a view of creating wealth. You must focus on returns as well, which will depend entirely on how much time you have left before you retire. If retirement is still a long way away, you can make the most of investing in riskier options such as mutual funds and shares. But, if you have only a few years to go, it pays to play it safe and stick to options that offer consistent and assured returns. As a thumb rule, having a diversified portfolio that features fixed deposits is most ideal.
So, if you’re planning to retire early with just your fixed deposit income, don’t forget to consider these aspects before making a decision.