Almost everyone invests in FDs (or fixed deposits), which are also known as term deposits in some circles. All investment strategists suggest parking a part of every portfolio in FDs. It is difficult to locate any investment portfolio in India that does not allocated any money at all in a FD. It carries low risk and a predictable interest income.
However, to maximise the benefits of FDs, one has to avoid a few common mistakes. Let’s have a look as to what they are and how they can be avoided in order to derive the full impact of capital gains that they promise. Let’s see the rules of investing in FDs, or in other words, the Dos and Don’t while investing in FDs.
Don’t invest without a clear financial goal
It is very common to invest without a clear target in mind. In order to have a financial goal and dovetail the FD to it, one must scout the market for the different banks, the different tenures and the different interest rates that dozens of institutions offer at any given point in time. Obviously, the normal response is to grab the highest interest. But one has to set clear priorities about the tenure of investment to suit your needs and not single-mindedly chase the highest interest rate.
Don’t forget to monitor your FD and look out for opportunities
After investing in fixed deposits, one should not forget to monitor it and only remember the date of maturity of the instrument. It is quite possible that new fixed-tenure FDs are announced that would mature close to the date of your FD but would offer some additional interest. Not monitoring the environment would make you lose some extra cash.
Don’t put all your money in one FD
If you have a significant sum of money to invest and putting it in a single FD gives you a rosy picture about a significant interest income at the end of the tenure, never deposit all your money in a single FD. If you put all the money in one FD, you might have to withdraw it before maturity – and thereby lose interest – if you land in a situation where you need some cash on an emergency basis. Therefore, evaluate both short, medium and long-term deposits and break up the amount into multiple deposits.
A Fixed Deposit, or FD, is perhaps the most trusted investment instrument in India with it retaining significance even in this age of feverish equity and mutual fund cult. But avoiding these common mistakes is important. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
