When it comes to investing your hard-earned money or your years of savings, you may come across a variety of investment options that come with the different level of risks.
If you are new to the world of investing and don’t want your ROI of the investment to be lingering on market performance (mutual funds, stocks. Etc), you should go with an FD.
Yes, investing in a fixed deposit scheme is safe and risk-free as it’s not affected by fluctuations in the market, unlike other risk-prone investment options.
That said, there are some mistakes that you must avoid when you are investing in a fixed deposit scheme. Let’s have a look at five of them!
- Using all your Savings
You should not utilize all your savings to invest in an FD as you won’t be able to withdraw it before the maturity with ease. Even though you may withdraw it before the maturity if you face any urgent crisis, you may be able to do, but you may have to cough up a penalty, and your ROI will be scrapped. If you want some urgent money, you can avail a loan against your FD at a lower rate of interest.
- Don’t forget the Tax
Yes, you would say that investing in a fixed deposit scheme gives you some tax benefits. But the interest income that you earn from it will still be taxable as per your existing income tax slab. Leading non-banking finance companies (NBFCs) let you enjoy no TDS on payment of interest up to Rs.5,000 per year.
- Not being confident about your returns
Before you invest in a fixed deposit scheme of a leading lender, you need to check and compare all market prices. For example, the fixed deposit of leading online non-banking finance companies (NBFCs) carry highest CRISIL stability rating (FAAA) and highest ICRA stability rating (MAAA). They also offer you FD interest rate of up to 7.85 if you are a standard citizen and 8.10% if you are a senior citizen. Thus, make sure what will you get before investing. It would also be good to utilize the fixed deposit calculator to exactly know your interest returns that you are slated to get over an FD tenor.
- Using an FD to compensate for inflation
If you have plans to increase your purchasing power during inflation, the usage of a fixed deposit investment is not a good idea. Why? It’s because although FD interest rate gets affected by the current inflation rate, in the long run, they may fall behind. As a result, you will need to take calculated risks such as investing in stocks, real estate, mutual funds to make the most of the benefits of the long-term investment.
- When you ignore the terms and conditions of the FD liquidity
You should know that a fixed deposit could provide more liquidity when compared to assets such as real estate. However, you should note that it comes to you at a cost. Yes, it is because when you decide to withdraw from your fixed deposit, you have to pay the penalty for a premature withdrawal. Also, since you are withdrawing before the maturity of the FD scheme, you will also end up earning lower interest rate than the one that you would have pocketed on its stipulated maturity.
The Bottom Line
Before you start investing in a fixed deposit scheme, you need to be completely aware of the latest analysis of the market conditions. Also, go through the fine print of your FD deal to be aware of everything and avoid making mistakes. Happy FD management!