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Common Mistakes to Avoid while Investing in Fixed Deposits

Posted July 11, 2017 by Aman Khanna to Investing 0 0
This post was written by a EasyFinance.com Community member. The views expressed below may not reflect the views of EasyFinance.com.

Many people favour fixed deposits over other forms of investment. This is primarily because fixed deposits offer some kind of security. People have faith in fixed deposits, which is justified as regardless of market conditions, the rate of interest that will be accrued on a fixed deposit will remain the same till it matures.  Although these benefits do exist, there are certain factors that you have to be clear about.

Most of the time, people tend to take the wrong steps and end up making decisions that are bad for their finances. When investing in a fixed deposit scheme, make sure you avoid the mistakes that an amateur investor makes.

Following are several mistakes that are commonly committed by the people investing in fixed deposit schemes:

Putting All the Money in One Place: When an individual opts for an FD scheme, it’s a common practice to place all their money in one particular scheme. However, that’s not the right way of investing, as putting all your eggs in one basket would not bring you the best results.

Investment in multiple banks is much more advisable than investing in one particular bank. Keep under consideration that the deposit insurance system protects investments under INR 1 lakh. If you are planning to invest INR 3-4 lakh, then splitting up the amount into 3 to 4 different investments is advisable.

Moreover, splitting your money into multiple FDs will help you withdraw funds during emergencies. You will just have to break one FD and not the entire amount. Thus, the premature withdrawal penalty wouldn’t be applicable on the entire amount.

Take Proper Steps: The decision to invest in different financial institutions is advisable. It helps you make up for the risk of default on the bank or NBFCs part. However, this does not ensure a successful investment each time, unless you research every bank or NBFC that you are starting an FD with, to ensure that they are all safe and reliable firms.

Plan the Tenor Properly: This is something that the majority of investors get wrong. It’s pretty essential that you plan the tenor of your FD properly. It is important that you evaluate your need for money first. If you have a short-term need then don’t opt for a long-term investment. In such a case, you will have to withdraw the FD prematurely which will lead to a lower income through a lower rate of interest, and may even result in penalties.

Research for Alternate Options: It is a common notion that only banks provide these services. However, that’s not the case, as various Non-Banking Financial Companies provide the service of fixed deposit too. Apart from NBFCs, even co-op societies offer these services.

Not only are these financial institutions providing these services, they are offering a rate of interest which is much higher than that of a bank. Thus, one should look beyond banks for fixed deposit services. However, make sure that you verify the credibility of the institution and only then make an investment.

These four steps will help you ensure that your investment is safe. You don’t want to lose your hard-earned money, thus, you must think about these variables before investing.

FD is one of the safest investments, However, there are several mistakes that are commonly made by investors. It is essential that people investing in FDs should be aware of these pitfalls.

About Aman Khanna: Aman is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment and Fixed Deposit marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms

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