Ways to obtain higher returns from Fixed Deposits

The increase in economic literacy across the country has brought about many forms of investment avenues in the limelight. However, a fixed deposit (FD) still tops the list for a risk-averse investor. An investor who wishes to have guaranteed returns without assuming much risk opts for such investment in fixed deposit along with other investments. Not only that but most investors who are willing to assume the risk for their investment portfolio, too prefer to hedge their risk by allocating an adequate quantum of their investment in fixed deposit.

Those investors who wish to invest in fixed deposits prefer to have predetermined returns and lesser exposure to the market fluctuations. Although the returns are predetermined, there are various ways how one can maximise their returns from investments-

Opting for a Cumulative Fixed Deposit

There are two forms of fixed deposit – cumulative and non-cumulative. They differ from each other in the method of calculation of the FD interest rates followed. Under the cumulative method, interest is compounded either monthly, quarterly or half-yearly and paid at the time of maturity. The non-cumulative approach computes interest on the base amount of investment in FD; credited to the account depending on the terms of the investment.

Checking for the Rating as notified Credit Agencies

The deposits offered by non-banking financial companies (NBFCs) and corporates have a rating which determines their ability to pay back the debt. This is known as the credit rating of an instrument and should be looked at before investing. The organisations that have a AAA rating are most secure.

Invest in FD for Senior Citizens

Generally, most fixed deposits have around 0.50 per cent higher rate of interest for senior citizens than that offered to normal citizens. Taking advantage of this situation, one can invest in FD’s in the name of your parents that helps in earning a higher rate of interest.

Avoid Preclosure of your Fixed Deposit

Preclosure of fixed deposit investments lead to a penalty on the investor. This amount of penalty may vary among different institutions. For avoiding such pre-closures, financial advisors recommend investing in multiple smaller amounts of deposits instead of one single larger amount.

Some key takeaways to remember when you invest in fixed deposit –

• Selection of an optimum duration of your investment, neither too long nor too short, depending on your financial goals.
• Some institutions offer a better interest rate when invested for 13 months rather than 12 months. Ensure you compare such differences and select the right scheme for investment.
• Remember the power of compounding instead of focusing on the payouts to the investment.

The above measures help you in going a long way to maximise gains from your FD scheme. Invest wisely using these tips mentioned above!