Preparing a diversified investment portfolio is essential in ensuring financial stability and security. A diversified portfolio helps disseminate your risk across distinct asset classes, which lowers vulnerability to market volatility and makes your portfolio more adaptable to the dynamic financial landscape. It also helps meet various financial goals, including capital growth and capital preservation, through a strategic mix of assets and investment strategies.
To attain financial stability within your portfolio, a fixed deposit (FD) is a recommended instrument. They not only secure your investment portfolio against fluctuations but even ensure a constant income flow.
Table of Contents
Reasons to include fixed deposit in your investment portfolio –
Compounding benefit
Fixed deposits work on a reinvestment approach, where the interest constituent is compounded and included in the principal, which considerably enhances your returns over time. This compounding effect becomes more pronounced with longer FD tenures. This feature is particularly beneficial for long-term planning such as retirement or other crucial financial goals.
Customisable tenures
FDs have varying tenures, ranging from a few months to several years. This flexibility helps you to choose an FD scheme that is in line with your liquidity requirements, investment time frame and risk appetite.
Risk mitigation
FDs stand out for their stability features, especially when contrasted with the volatility of stock markets or mutual funds. They act as a financial cushion during market downturns, safeguarding your capital. This is particularly important for you if you are a conservative investor or one of those nearing retirement, who cannot afford capital depletion.
Management of liquidity
FDs, especially short-term ones, play an essential role in managing liquidity. They generally provide a higher rate of interest than savings bank accounts and can be liquidated easily or redeemed in the scenario of financial exigencies, often with minimal penalties. This makes the product an ideal instrument for exigency purposes, ensuring you get access to funds when required without compromising on your earning potential.
Balancing high-risk investments
If you are one of those engaged in high-risk products like equities or commodities, then you may stabilize your portfolio with FDs. By allocating a portion of your surplus funds to an FD, you can reduce your overall risk level. This is essential in portfolio diversification strategies, where the goal is to mix distinct asset kinds to attain a balance between risk and return.
Predictable returns
A significant benefit of FDs is the predictability of returns. When you park your surplus fund in an FD, the interest rate is fixed and does not change throughout the deposit tenure. This predictability ensures precise financial planning. You can compute the exact figure on maturity, which acts as an aid in setting concrete goals and making better decisions linked with future expenses and investments.
Ease of investment
Simplicity is one of the most enticing facets of FDs. They are straightforward to understand and can be opened instantly with minimal documentation, making them accessible to distinct types of retail investors. Most financial institutions allow access to this facility through digital means, making the procedure more convenient. In case you are looking for a prudent FD deal, you may consider opting for INDIE fixed deposits, which offer an interest rate of up to 7.5 per cent per annum.
Ending note
While FDs are a must-add financial product for your investment portfolio, it is imperative to maintain a balanced approach too. Financial stability with fixed deposits does not infer overlooking the potential of generating high returns on market investments such as bonds, stocks, or mutual funds. The key is to strike a balance among investment products – use FDs to avail stability in the portfolio and complement them with market-associated instruments for potential growth. This ensures not just capital preservation but even the opportunity for wealth generation..
