Intelligent Investments with FDs

June 18, 2019

Intelligent Investments with FDs

This is my first blog on investment and I have something new on the platter for you all.

Let’s start with a very famous quote by “Mohnish Pabrai” that says “Return of Capital is more important than Return on Capital“ and I must say that with an instrument like Fixed Deposits, both are assured.

Depositing additional funds are always welcomed by the bank, but as an investor you are always muddled where to store this money.

Fixed Deposits (FDs) act as a safer bet in comparison to other asset classes for e.g. equities, gold, real-estate, bond, etc. To substantiate my point, extreme volatility in equity markets may lead to a significant decrease in the investor’s portfolio value whereas a decrease in interest rates by the Reserve Bank of India (RBI) does not significantly impact the investor’s Fixed Deposits value and it is not prone to any market fluctuations.

So, in this current market scenario, which is better termed as “uncertain” rather than blatantly labelled as a “recession”, Fixed Deposits can be intelligent investment instrument where you are locked in for a rate that is applicable to your Fixed Deposits with the prevailing rates.

Fixed Deposits help an investor to avert liquidity crisis. So, if you didn’t know, banks generally offer an overdraft against Fixed Deposits up to 90% of the investor’s Fixed Deposit value which have a lending rate of 100 basis points higher than their rate of interest earned on the Fixed Deposit.

Now I am getting a bit deeper into an investor’s psyche. We all like to go on a spending spree and empty our pockets. Here is when Fixed Deposits come into picture. It offers investors a chance to simply ‘lock-away’ a part of their investment.

So, to conclude my blog I feel that FD as an investment option to an investor offers a vary of benefits like higher interest rates in comparison to bank Savings Account, flexible investment duration and also helps the investor in planning his or her taxes as some deposits come with tax benefits as well.

To summarise, I would say it’s a good option and one must have an FD in his or her portfolio mix to have a better risk reward ratio.

 

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