Why Do Indians Prefer Fixed Deposits

We have all grown up hearing our parents sing praises about FD investments. In fact, despite the growth prospects of the Indian stock market, even today, the humble fixed deposit still remains one of the most preferred investment choices among retail investors. Most risk-averse, small investors seeking guaranteed returns instantly gravitate towards FDs. In this article, we explore the reasons why Indians prefer FDs to help you better understand the allure of fixed deposit accounts.

• Fixed deposits offer assured returns, capital safety, and zero volatility risks.
• Non-cumulative FDs double up as steady income plans for Indian retirees.
• These safe investments require a low minimum investment and offer loan facilities.

The myriad of attractive features FDs have to offer make them one of the most popular investment avenues in India. The list of features outlined below will help you understand why Indians prefer FDs:

Guaranteed returns

Most Indians are risk-averse and prefer the surety of guaranteed returns FDs have to offer. The interest rate on your FD investment is determined on the day you open the account and remains constant throughout the selected investment tenure. The principal plus interest is paid to you upon maturity. In other words, your returns on the investment are assured. Generally, these returns are higher than savings accounts since FDs offer attractive interest rates of 6%-8% p.a., depending on the bank and tenure selected.

Reasonably liquid

Indians prefer FD investments due to the relatively liquid nature of these deposits. For generations, Indians have relied on FDs to tackle urgent cash crunches. Since most Indians prioritise the ability to make capital withdrawals to meet emergency cash requirements, FDs remain a preferred investment option. Fixed deposit accounts permit easy premature withdrawals from the invested corpus at any time, albeit upon payment of certain interest rate penalties.

Loanability of the deposit

FDs offer easy borrowing options to Indians. In simple words, if you have an FD account, you can pledge the corpus as collateral and obtain a secured loan from the bank. Generally, the loan-to-value ratio is quite high, reaching up to 90% of the corpus value. The interest rates applicable on such secured loans are also lower than personal loan APRs. In a nutshell, FDs amalgamate the benefits of assured returns, capital safety, and easy financing into one product. This is why Indians prefer FDs.

Flexible tenure options

If there is anything Indians love in investment instruments, it’s flexibility. FDs offer ample flexibility to investors in terms of investment tenure. You can choose from various tenure options ranging from 7 days to 10 years. This makes FDs popular options for fulfilling various goals - be it short-term or long-term.

Safe investments

This is arguably one of the most significant reasons why Indians prefer FDs. Fixed deposits offer complete capital safety since returns are not market-linked. Therefore, regardless of market volatility, your principal and interest earnings are safe. The DICGC offers insurance coverage of Rs. 5 lakhs/customer for fixed deposit accounts opened at licensed banks. Various credit rating agencies monitor the default risk and financial standing of NBFCs, making even corporate FDs relatively safe. This capital preservation guarantee makes them ideal for Indian investors like retirees, housewives, and students. If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.

Low minimum deposit requirement

Unlike other lump-sum investment products that require high minimum investments, FDs can be started with a nominal investment of only Rs. 1,000. In other words, even those with limited funds can still avail the benefits of steady and guaranteed interest rates with FD accounts. This low investment requirement is another reason why Indians prefer FDs.

Can double-up as income plans

Indian retirees often fall back on FDs as a source of consistent income in their post-retirement years. Investing in non-cumulative FDs allows you to enjoy a steady income flow on a monthly or quarterly basis. Some use FDs to supplement the pension they receive from their retirement plans. In short, FDs help generate a steady income for your golden years.

Help balance portfolios

Lastly, FDs play a crucial role in balancing out investment portfolios for Indian investors. Unlike market-linked instruments like stocks, FDs carry zero volatility risks. Their assured returns and capital safety features help balance out the volatility component of your portfolio from various market-linked products.

Indians who prefer capital preservation and guaranteed returns instantly gravitate towards fixed deposit accounts. Their safe nature, liquidity boons, loanability, flexible tenures, and period interest payout options are just some of the reasons why Indians prefer FDs. That said, parking your entire corpus in any one investment instrument, even if it is FDs, is not prudent. As an investor, you should aim to build a diversified portfolio with stable components, such as FDs and high-return instruments like stocks and bonds. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.85% p.a.