- What Is A Fixed Deposit (FD)?
- Types Of Fixed Deposit
- Why Is It Considered Ideal For Beginner Investors?
Are you looking to kickstart your investment career? If yes, you will need something that doesn't comprise too many technicalities and is easy to comprehend. Fixed deposit is an ideal investment option for beginners, enabling them to keep their money safe and earn interest.
Investing is a daunting task. Every investment vehicle comes with its unique set of characteristics and caters to a niche audience. Anyone looking to earn more will refrain from debt and provident funds. But the latter is excellent for those looking to keep their funds secure and locked for some years.
These things can deter a layman looking to commence his investment journey. Parking your funds in their entirety in a savings account won't bode well for your future. It would be best if you instead look for instruments capable of eliminating or reducing your risk element while still earning higher returns. Fixed deposit is one of the prime examples and caters well to the new entrants to the investment world.
A fixed deposit is an investment instrument with a fixed tenure. It is a debt vehicle lenders offer to those looking for investment options with guaranteed returns. Depending on the type of fixed deposit you choose, the borrower receives periodic interest or on maturity. Even though most people prefer it long-term, you can get a term as short as a year and as long as a decade.
You have to notify your lender on maturity if you want to withdraw the accumulated sum (principal and interest) or reinvest it for the same tenure again. Most lenders follow a rollover, i.e., if you fail to inform them, they will automatically reinvest the sum.
Before you choose the best fixed-term deposit, it is imperative for you to understand the types of fixed deposits.
With cumulative fixed deposits, the lender doesn't provide you with periodic interests. You, instead, get it all on maturity. If you think you are losing money, it is the opposite. Here, the lenders reinvest the interests, meaning that you earn interest on interest.
Cumulative FD is an ideal investment option for beginners who do not need a regular cash flow. The tenure of such fixed deposits ranges between 12 and 60 months. You get the sum of your principal and accumulated benefit on maturity.
Non-cumulative FDs are like your savings account, albeit with a higher interest rate. Here, you can choose the frequency of your interest payout while applying. Like in a cumulative FD, you get the principal on maturity.
It is an ideal fixed deposit investment for those seeking regular inflow (for example – retired individuals) while ensuring the sum deposited remains safe. Investors can choose a tenure between 12 and 60 months.
Here are the reasons for us touting fixed deposits as an ideal instrument for novice investors:
A beginner investor looks for some security to ensure he doesn't lose his money. So most such individuals are cautious in their approach and are reluctant to invest in a high-risk stock.
With FDs and other debt instruments, they eliminate the volatility and risk factor. These ensure you won't lose your money, even if the economy performs poorly as a whole. It is an ideal investment option for beginner investors for the same reason.
If you are looking for investments with guaranteed returns, a fixed deposit will suffice with your needs. Given the volatile nature of the investment landscape in the last year, an instrument offering pre-decided returns often becomes the best investment option for beginners.
One of the significant benefits of fixed deposit is its uncluttered nature. Understanding its mechanism won't require you to be a finance expert. It is simple – you invest your money with a lender for a specific tenure, you earn interest, and you get the principal amount back on maturity.
A fixed deposit can be as short as a year or as long as a decade. It entails flexibility with the added safety of funds. It is imperative to understand that lenders prefer you parking your funds for a longer span. So they pay higher interest on long-term FDs.
The investors of non-cumulative fixed deposits can avail the benefit of flexible interest payment. When you invest your money with the lender, he would ask you to choose between quarterly, half-yearly, or annual interest payments. It is essential to understand that you will not get the compounding benefit in this case.
A fixed deposit investment is an upgraded version of a savings account. It enables you to earn higher returns on your idle funds than parking them in your bank account otherwise.
Borrowers can use FDs as collateral if they are looking for a loan. Banks and other lenders readily accept it as a security and can forward up to 90% of the same as a loan. It offers the much-needed flexibility for a beginner investor.
As a beginner investor, you can often forget the maturity date of your investments. So Shriram City Union Finance has a rollover facility allowing you to reinvest the funds for a similar tenure and identical terms and conditions. It would ensure that you do not lose out on interest earnings.
One of the most significant issues that a beginner investor faces is inculcating the habit of savings. With fixed deposits, they lock-in your funds for a specific tenure. It means you will find it difficult to withdraw it unless it is an absolute necessity.
What are the documents you need to get an FD?
Like everything else associated with fixed deposits, the documentation is relatively straightforward too. You will need ID proof, address proof, photographs, and a cancelled cheque for getting your FD with Shriram City Union Finance. The process is seamless and takes a few minutes.
With a fixed deposit offering a host of benefits, it is an ideal start for newbie investors. It helps you grow your money while educating yourself with the plethora of options the investment world offers. It also allows you to earn more than what you would by parking your funds in your savings account.
Are you looking for the best fixed term deposit? Shriram City Union Finance offers you the rates that are amongst the industry best. We provide flexible maturity tenure ranging between 12 and 60 months. Plus, we offer monthly compounding to ensure that your money proliferates.
Click here to explore the world of fixed deposits with Shriram City Union Finance.