Doubtful About Having Fixed Deposit in India After Currency Revamp?
Whether resident Indian or NRI, the recent demonetization has raised questions about what to do with the old currency notes.
Banks have cut interest rates on Fixed Deposit schemes, which were already low. So, should you completely ignore Fixed Deposits and invest in other options like mutual funds?
Fixed Deposit in India
India has had a good tradition of creating savings for the future. People mostly believed in security above earnings and choose to invest in bank FD schemes rather than in shares and other investments that involve risks.
This changed eventually as globalization and a liberal economy resulted in increased income and more cash to spare. Investors began to seek high-return investments like shares and the money market in addition to safe options like FDs.
However, Fixed Deposits still remain popular as a way to park excess funds for a specific period of time.
Fixed Deposits are also easy to liquidate, though it might involve a loss in interest earnings. They are also safe as banks and NBFCs are governed by the RBI. Now, investors can gauge the relative safety of even Corporate Fixed Deposits as they receive ratings by credit rating agencies like CRISIL am ICRA.
Currency Revamp and Fixed Deposit Interest Rates
The recent high denomination note ban has resulted in an increased flow of cash deposits in banks. This has caused banks to cut interest rates on FDs as they have increased cash inflow into savings accounts on which they have to pay much lesser interest.
However, many banks and NBFCs are offering incentives to depositors to open Fixed Deposits with them, and are offering good interest rates on some specific schemes like Fixed Term Deposits and on Senior Citizen FDs.
If you are young and are considering various investment options including risky yet high yield choices, the FD might not seem ideal to you. Yet, it is a safe investment. After investing in growth funds, you can consider investing a portion of your funds in Fixed Deposits. You can split your spare funds into smaller deposits with different tenures and reinvest the matured amount in other instruments depending on your liquidity need and capacity to take risks.
Many Choices in Fixed Deposit Schemes
You can choose to invest in banks or in NBFCs or even in Corporate Fixed Deposit schemes. Non Banking Finance Companies generally pay higher interest rates than banks. Corporate FD schemes involve a certain amount of risk, but they pay the highest interest rates on Fixed Deposits. You can choose a corporate FD based on the company’s CRISIL rating.
FDs and Safety Issues
Having Fixed Deposit gives you a sense of security as you are mostly assured of the safety of the principal amount invested and an assured earning on the deposit. If you choose safely. you can invest your money in fixed deposit and get high returns on your investments.
For instance, Bajaj Finserv offers FD schemes where you can earn relatively higher rate of interest. They also offer flexible tenures for the deposit. You can also be assured of the safety of your investment as Bajaj Finserv has a good FAAA rating from CRISIL.
So, even in this current situation, a Fixed Deposit offers a good way to put aside excess funds. You can choose the tenure and type of deposits and interest payouts to suit your need. Fixed Deposits are easy to create. You can also use FDs as sources of emergency funds, you can foreclose them with penalty charges or take loans on the deposits without incurring penalties.
Fixed Deposits thus offer safe avenues of investment and liquidity.