Finance, Loans & Insurance
Why Investing In A Long Term FD Is Beneficial
With changing times, banks are not the only financial bodies who are effective in investors’ portfolio. There are various Non-Banking Financial Companies (NBFCs) which are in the limelight for providing high-quality services. Top rated NBFCs with regards to their efficiency and stability have become a go-to-option for investors looking to invest in fixed deposit.
When we talk about fixed deposit, three components are involved; the fixed deposit amount, the rate of interest and tenure which matters the most. The amount that you are investing along with the rate of interest that your amount is accruing is important. However, the most instrumental part is the tenure for which you are investing.
What are the factors which make tenure an important element?
Interest returns: Banks are quite rigid when it comes to interest returns on fixed deposit. However, NBFCs offer a higher rate of interest and thus, with proper tenure you can earn a decent amount of money on your investment.
Tenure flexibility: Most of the banks offer a 1-3 years period in which they offer a higher tenure rate. However, there are NBFCs who offer higher interest rates throughout.
Major Benefit: Assurance is what an investor is looking for when seeks to invest in the fixed deposit. It is favourable if you invest in a fixed deposit for a longer term as you will earn higher returns.
Lock-In rates: With the emphasis being laid on home loans and repo rates left unchanged. The fixed deposit market will not offer a higher interest rate anytime soon. Thus, it is essential that you lock-in now so to prevent yourself from investing in a fixed deposit which offers a lower interest rate.
For instance, if you deposit INR 10 lakhs which attract a rate of interest of 7% for 5 years will help you earn better returns than if you opt for 2-3 years. Thus, it is essential that when deciding on a fixed deposit, the approach must not be lopsided.
The majority of the financial institutions would suggest that you opt for a shorter term. However, it is essential that you do not fall for it. On your part, it is essential that you do some much-needed forecasting and analysis to check out the FD products which offer the highest interest rate. However, a higher interest rate is not the only variable you have to consider. You must look for a long term tenure as well.
There are charts available online where financial institutions specify clearly about the returns that you will avail on your deposit for a specific period. There are various banks which offer a higher interest rate for the first three years but as the tenure increases the rate of interest decreases. For instance, a bank offering 7% on fixed deposit of up to three years. However, if you opt for five years, the rate of interest falls to 6.75%.
Although this is discouraging, it is important that an investor only looks for a long term investment. It will ensure that an investor does not become a prey to the declining interest rate. Apart from that, the biggest incentive for investing in a long term FD is the guaranteed income over an extended period of time. When we look into the current scenario, the government is taking steps to control inflation, and this will keep the interest rate downward. This downward trending trajectory is a sign that you must invest now so to avoid getting the lesser interest rate on your investment.