Making the most of Fixed Deposits

Fixed deposits are the most preferred mode of investment for many in India. The popularity of FDs are backed  by many obvious reasons. They are the most stable form of investments.

Without having to worry about market risks, the depositor fetches handsome and stable returns making them the most likeable choice for the risk averse people and retirees. 

The fixed deposits that come with a withdrawal option provide the depositor a cushion in case of emergencies. But if they do not come with a withdrawal clause, breaking them will result into a charge. 

The only concern with fixed deposits is that the money mostly gets locked in for a certain period and withdrawal before the term results into a charge. 

How to use FDs so that you can enjoy most of its benefits?

  1. Sweep in FDs-As the term suggests, these are an automated kind of fixed deposits resulting from Savings accounts. There is a cap attached to this kind of savings account. If this limit is reached, the excess funds shall directly turn into sweep in fixed deposits. If you want to withdraw money from the sweep-in accounts, you can do so without worrying for any charges. Clearly, the fixed deposits yield more interest income than the savings account. Different banks have different threshold limits for the savings account to turn the excess funds into fixed deposits. Also, there is a minimum balance criterion attached to such accounts. Thus, sweep-in accounts provide double benefits. They are liquid and they earn more interest.
  2. Flexi-fixed deposits-When the amount and number of months for an FD are not fixed, it is called a flexi fixed deposit. Such deposits are flexible as compared to the regular fixed deposits. They allow changes in tenure and amount of investment which can be from 7 days to 10 years. The depositor can decide about the tenure and maturity at the time of making the investment. It could be a one-time deposit. The amount to be invested on a monthly basis and the number of months, both can be changed depending on the requirements. Flexi-fixed deposits can be used to take a loan against them. These deposits allow the depositor to withdraw a certain sum of money from savings accounts linked to the this scheme. The terms may vary from bank to bank. Flexi fixed deposits carry a liquidity guarantee with higher returns. 
  3. FD laddering-The laddering approach lets a depositor to take multiple number of FDs so that they can be encashed at different maturity dates.  Instead of parking all your funds meant for FDs together, this breaking up of the total sum into smaller amounts could be of great help. Liquidity is usually a big question when Fixed Deposits are used as a means to invest money. Whenever needed, you are not supposed to break the entire pool all of a sudden but a part of it gets redeemed at different points of time, in order of their maturity dates. In case of emergencies even if one of the FDs is prematurely withdrawn, it will not affect rest of the FDs. Sometimes money is required as per our set goals. You can choose the maturity of the FD in such a way so that you receive an exact amount of money as per your predetermined needs. FDs can be chosen from different banks to suit your portfolio. This technique can be applied to all the investment options to set a cycle whereby you will get money after every few numbers of months or years. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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