Fixed deposits still rule investor’s mind

Its risk free and hassle free nature and flexibility of tenure make the fixed deposit the best bet among the variety of investment options.

India is a land of diverse cultures, religions and languages. In a country where language, dialect and food habits change every hundred kilometres, some things rem-ain constant. No, we are not talking about Indians crying war when it comes to an India-Pakistan cricket match, or our blind faith in Aamir Khan’s histrionic abilities, but about our ingrained financial habits.

Despite the deluge of many attractive and high yielding investment plans, the common man across India still prefers bank fixed deposit as a preferred investment vehicle. Despite the economy rising exponentially in the last decade and investors from all over the globe showing interest in the Indian equity market, traditional fixed deposits ha-ve managed to maintain their allure.

Different surveys conducted by many investment companies have revealed that while interest in equity market is high, bank fixed deposits continue to rule the hearts of the Indian investor. Let’s see why. Low investment limit Fixed deposits do not require any high minimum amount to start investing. Some public sector banks allow people to start a fixed deposit account from as low as '1,000. This ease of investing with a low minimum amount accompanied by very less paperwork has been one of the reasons why FDs have been the preferred investment by majority of Indians. Even the most well informed investor would have some funds parked in a bank fixed deposit.

Assured returns Indian investors are traditionally low-risk takers and tend to invest in instruments offering secured returns than in high-risk-high-reward investments. Since bank fixed deposits are assured-return products, investors are more at ease investing in them as compared to a mutual fund or equity investment. A little information is a dangerous thing and most people presume that all their FDs are guaranteed by the Reserve Bank of India; while the fact is that bank fixed deposits up to a value of '1 lakh are insured by the government through Deposit Insurance and Credit Guarantee Corporation.

Better returns Since bank fixed deposits offer higher interest rates than saving bank account, people are tempted to switch their extra funds conveniently in a fixed deposit scheme. This means that people who are not essentially investors are also parking their money in bank fixed deposits. Just like how interest earned on savings bank account is taxable, people do not mind paying tax on interest earned on a bank fixed deposit as it offers decent, and more importantly, safe returns. Loan facility option The facility to avail loans against FDs with ease is another reason why FDs rank high in many investors’ list of preferred investment channels. Seeking a loan in case of a financial emergency can be a tough proposition especially if you have a low credit rating. If you have a fixed deposit, banks are happy to lend money to you against that and that too at a far lower interest rate as compared to a personal loan.

Flexible tenure Bank FDs have flexible tenure options catering to the need of investors with different investment horizons. People can choose to invest from as low as a seven-day period to a five-year period depending on their preference. What’s more, banks these days have the facility of auto-renewal, which means the fixed deposit is renewed after its tenure ends even if the investor fails to visit the bank.

The writer is the CEO of BankBazaar.com