As repo rates fall, follow these 5 strategies to invest in FD

Published: 27 March, 2020 13:41 IST | Partnered Content | Mumbai

Remember that FD interest rates for senior citizens are higher, and you can capitalise on higher returns when you invest on behalf of your parents or grandparents

This picture has been used for representational purpose only
This picture has been used for representational purpose only

On March 27, 2020, the RBI cut the repo rate by 75 basis points, bringing it down to 4.4% - the lowest in a decade. Amid underperforming markets, this news means that fixed deposit interest rates are likely to go down further. Additionally, the recent turmoil in the banking space points to the fallibility of banks, which is making investors question the worth and value of fixed deposit.  A traditional yet popular way to invest, fixed deposit has and will continue to offer investors both safety and inflation-beating returns. As such, ensuring that FD is a part of your portfolio makes good financial sense; however, there are certain strategies you can use to reap more from your deposit.

In order to maximise returns on your FD during these times, the right thing to do, is to lock into high FD interest rates, before financiers start reducing rates on their deposits. When choosing where to invest, here are 5 strategies you need to follow.

Strategy 1: Limit your risk exposure by choosing safe issuers

First and foremost, being blindsided by high interest rates when choosing to invest in an FD is a practice best set aside. In today’s times of plunging markets and instability, ensuring the safety of your capital is a prerequisite. After all, diversifying risk is the main reason for you to choose FD in the first place.

However, you can still work towards capital appreciation by following a few strategies.

Check safety ratings

In today’s challenging times for banking and financial sector, several credit rating agencies are downgrading safety ratings, which reflect the safety of your deposit and the risk of defaults. It is hence, more important to check stability ratings of company FDs and banks alike. If you’re looking for the right balance of safety and high returns, it is best to invest with Bajaj Finance Fixed Deposit. As the only NBFC to have ‘0 unclaimed deposits’ in the market, this FD has gained the trust of more than 2.22 lakh happy customers who’ve contributed to a deposit book of more than Rs. 20,000 crores.

Bajaj Finance Fixed Deposit has the highest safety ratings of FAAA by CRISIL and MAAA by ICRA, which make it one of the safest investment avenues to grow your savings. With an interest rate of up to 8.05%, Bajaj Finance FD can be a smart choice for you to grow your wealth while reducing the risk in your portfolio.

Benchmark against current FD rates

Use the current average FD rates as a yardstick to choose FD offered by financial institutions whose rates are about 40 basis points higher. Limit just 20% of your savings to those issuers offering FD interest rates that are 80 basis points higher than the current average interest rate.

Check past performance of your FD issuer

Examine important figures relating to your chosen issuer’s financial performance to see if it is a safe bet. For instance, you can entrust your savings to issuers whose profitability, growth, capital adequacy and asset quality ratios point to no potential risk.

Strategy 2: Ladder FDs across varying tenors for liquidity

The next action to take to ensure that you don’t lose out on liquid funds and can still stash savings in an FD instead of a meagre-returns savings account is to spread your investment. By creating smaller deposits of a varied number, all of which mature at different points in time, you can benefit from payouts when you need them. This also helps you avoid premature withdrawals, which come with penalties and reduced payouts.

You can allocate funds to deposits on the basis on goals. For instance, your largest FD investment can mature in the longest time to help you make the down payment on a home, and your smallest FD investment can mature in a year to cater to a family holiday.

Strategy 3: Create investments on behalf of family members

Another important aspect to note is that recent Budget announcement has increased the insurance limit on deposits to Rs.5 lakh. So, you can create multiple deposits of Rs.5 lakh and under and be rest assured about getting your money back in case the bank goes under. To do this, you can create deposits on behalf of various family members.

Remember that FD interest rates for senior citizens are higher, and you can capitalise on higher returns when you invest on behalf of your parents or grandparents. For instance, while Bajaj Finance offers returns of up to 7.90% to regular and existing customers, it offers a rate of 8.05% to senior citizens.

Strategy 4: Ensure your investment names beneficiaries and nominees

Planning for future financial security means paying attention to the worst case scenario and plugging the leak, if any. Whether you’re making an FD investment now or already have them in place, ensure that your FD names a nominee.

The best way to proceed is to have a joint FD with the 'anyone or Survivor' option. This allows the FD to continue in the name of the survivor if the first or joint holder are no more and also allows the joint holder to handle the deposit in case the first holder is no more.

Strategy 5: Make small monthly deposits to earn frequent payouts

Another innovative way for you to benefit from assured returns of FD while side-stepping the lump sum investment required for most investments is to choose Systematic Deposit Plan (SDP). Offered by Bajaj Finance, SDP gives you the convenience of making a monthly contribution starting at just Rs. 5000 per month to create new FDs at the current rate of interest. In a sense, this is just like an SIP, but without the risk. You can choose to make a number of deposits, between 6 and 48, and select a tenor that applies to them all. This way, you can enjoy frequent payouts as well.

Keeping these 5 strategies in mind, your FD investment could be a rewarding way to ensure you receive guaranteed earnings, branch out the risk in your portfolio, and benefit from high current rates of interest against the expectation of lower rates in the future. Get started on investing in FD now, before interest rates fall. To get started, fill out the online FD form to start investing from the comfort of your home.

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