Shriram Transport Finance Company Limited

Are You Investing in a Fixed Deposit? Must-Know Pros and Cons of an FD!

  • Deposit
  • 3 Months ago

Written by - Shriram

Did you know 95% of Indian families prefer a fixed deposit over other market-dependent investments? The most common reason is the safety of the principal amount and assured returns. The advantage of a fixed deposit from an NBFC like Shriram is that it guarantees security, assured returns and higher interest rates than most competitors. Considering the current market conditions, a company fixed deposit is the best investment choice to grow your wealth safely and quickly.
A fixed deposit is the most popular and one of the safest investment options in India. As Indian citizens will always consider the safety of the investment amount as the top priority, a fixed deposit is ruling the market as a low-risk investment option.
Besides, as a corporate fixed deposit offers higher interest rates than banks, new-age investors are moving towards high-interest fixed deposit schemes from NBFCs like Shriram to earn considerable money with their investment.
As you are ready to kick start your investment journey with a fixed deposit, let us dive deeper to understand the pros and cons of a fixed deposit before you start investing.
Is a Fixed Deposit Beneficial and Worth Investing?
Beyond the assured returns and safety, a fixed deposit benefits investors in many ways. A fixed deposit helps customers with healthcare, insurance and also tax exemptions.
Furthermore, a company fixed deposit offers an overdraft facility to meet investors’ sudden cash demands. Hence, with its advantages, a fixed deposit always finds a way into the investment portfolio of investors.
A fixed deposit is worth investing in for investors who want to earn stable returns without exposing their investments to market risks. Although there are many pros and cons of investing in a fixed deposit, investors must analyse their financial goals before they choose a fixed deposit.
Moreover, a fixed deposit is beneficial only if it is booked for the long term. Hence, an FD (Fixed Deposit) is the best investment choice in the current cash crunch economy if you have a long-term goal. Before you make your final decision, let’s look at the pros of a fixed deposit.

Pros of Fixed Deposit
A fixed deposit offers several benefits to investors. Here are a few advantages of a fixed deposit you must know;

  • Assured Returns – One of the most common advantages of a fixed deposit is assured returns. An FD is one of the few investments that offer assured returns and helps you make a stable financial decision knowing the exact amount you would receive at maturity.
  • Allows Premature Withdrawal – There are various rules, terms & conditions if you want to withdraw prematurely in other investment options like Mutual Funds and Stocks.

However, the best advantage of a fixed deposit is you can make premature FD withdrawals without any complex rules and regulations. As a premature withdrawal supports investors during emergencies, many investors choose FD as a part of their investment portfolio.
  • Tax Exemptions – You must know that interest earned from an FD is taxable. However, there is a tax exemption level until which standard investors and senior citizens can legally evade taxes under Section 80C of the Income Tax Act.
  • Loan Against an FD – A loan against an FD is the most significant advantage of holding a fixed deposit. Investors who do not want to break an FD during emergencies can get a loan against their fixed deposit. Financial institutions grant up to 90% of the FD amount as a loan to the investors.
  • High Security – One of the biggest pros of a fixed deposit is its security to the principal amount and accrued interest. Unlike other investment options, no market instability or economic fluctuation can affect the interest rates of a fixed deposit.

Traditional investors aren’t carried away by the interest rates as they prefer safety over interest rates.
  • Easy Availability – A fixed deposit scheme is available in most financial institutions like all public, and private banks, NBFCs, and post offices.
Investors can directly walk into a branch or visit the official website to book a fixed deposit. NBFCs like Shriram offer a quick 3-step FD opening process that facilitates you to book an FD quickly without any hassles.
  • Quick Renewals – If you are looking for wealth creation, it is best for you to renew your existing fixed deposit so you can double the interest amount and build a profitable portfolio.
Reinvestment is one of the underrated investment approaches which can be leveraged to multiply your FD investment smartly. Shriram offers an additional 0.25% interest rate on fixed deposit renewals.
  • Special Interest Rates for Senior Citizens – Senior citizens get an additional interest rate on top of standard interest rates when they book an FD. Shriram offers special interest rates for senior citizens of up to 0.50%* per annum.
  • Flexible Tenure – Choosing your investment tenure according to your convenience is one of the pros of investing in a fixed deposit. Shriram allows investors to open an FD offline and online through which you can choose your tenure of investment.
  • Open to all – A fixed deposit is open to all. Every Indian citizen and Non-Resident Indians (NRIs) have the right to open an FD with banks or NBFCs by verifying their Know Your Customer (KYC).
Cons of Fixed Deposit
The disadvantages mentioned below do not affect every investor and depend upon age, investment tenure and amount. However, it is essential for you to understand all the cons of a fixed deposit so you can cover all the bases when you book an FD with Shriram.
  • Lock-in Period – Although a fixed deposit offers quick liquidity, you may have a lock-in period to abide by until when you cannot withdraw funds from your FD. However, you can check Fixed Deposit Receipt (FDR) to know the exact lock-in period of your FD and plan withdrawals accordingly.
 
  • Withdrawal Penalties – Premature withdrawals are one of the most significant advantages of an FD, but it comes with a penalty. Banks and NBFCs charge a particular percentage as a withdrawal penalty, reducing your promised FD interest rates.

Hence, to avoid the withdrawal penalty, you can take a loan against your FD in case of any emergencies.
 
  • Tax Deducted at Source (TDS) – Interest earned from a fixed deposit is considered income from the source and is taxable. Hence, if your interest earned falls under your tax slab or bracket, a TDS of 10% will be deducted from your interest.

To avoid TDS deductions, you can submit a 15G form and form 15H every fiscal year.
 
  • Lower Interest Rates – Certain banks and financial institutions offer interest rates that are lower than inflation.

However, with Shriram, you can earn an interest rate of up to 8.90%*, which is currently higher than the FD interest rates offered by most banks and NBFCs.
 
  • No Changes in Interest – An FD interest rate stays stable and will never change until maturity, even if there is a revision in interest rates during the tenure of your FD. This is one of the most common cons of a fixed deposit that bothers FD investors.

Conclusion
Having understood the pros and cons of a fixed deposit, it is about time for you to make a decision. Investing with an NBFC like Shriram, you can go past the hiccups and build a profitable portfolio.
A corporate fixed deposit from Shriram is a game-changer as they offer safety, higher interest rate, assured returns and growth. Besides, Shriram covers all the bases for investors and helps them grow their wealth safety. So, book a fixed deposit with Shriram now.

FAQs
Are fixed deposits risky?
No, a fixed deposit is safe as it protects your principal amount, helps you grow with higher interest rates, and assures returns at maturity. With NBFCs like Shriram, your FD is exceptionally safe as it is rated “IND AA+/Stable” by India Ratings & Research and “[ICRA]AA+ (Stable)” by ICRA for safety.

Why is FD low-risk?
An FD is considered low-risk because other investments like stocks, mutual funds and debt funds depend totally on the market situation. But with a fixed deposit from Shriram, the interest rates are stable and not decided based on the market fluctuations.

What is the condition of a fixed deposit?
Lately, investors are willing to invest in a fixed deposit as NBFCs like Shriram as they offer higher interest rates and safety.

Is FD good for long-term investment?
Yes, an FD will grow well when you choose the longest tenure because an FD with the longest tenure will attract the highest interest rate. An FD is always good for a long-term investment.

Should I put all my money in FD?
Yes, you can put all your money in an FD if you have an aligned financial goal. However, it is better to diversify your investment and put all your money into different FD accounts with Shriram to leverage additional benefits and grow your wealth quickly.

Key Highlights
  • Did you know 95% of Indian families prefer a fixed deposit over other market-dependent investments?
  • The most common reason is the safety of the principal amount and assured returns.
  • The advantage of a fixed deposit from an NBFC like Shriram is that it guarantees safety, assured returns and higher interest rates than most competitors.
  • Although there are many pros and very few cons, considering the current market conditions, a company fixed deposit is the best investment choice to grow your wealth safely and quickly.