For generations, risk-averse investors have preferred to save their money in instruments like Fixed Deposits in India. They are also one of the most common financial instruments offered to customers by banks and non-banking financial companies. FDs are safe while providing good returns. However, these days, most new generations are choosing to invest only in products like Mutual Funds.

While this is a good move, it does not mean you cannot add an FD to your investment portfolio. In fact, a Fixed Deposit can be an excellent addition. Not convinced how? Well, the following are the top reasons that make FDs a good addition to your portfolio:

Possibility of assured returns

When you opt for an FD, you earn interest at a fixed rate on the deposited amount over a certain period. An FD offers assured returns, and you already know the amount you will receive at maturity. You can easily use the interest calculator to determine the amount you will get at the end of your tenure instantly. 

Moreover, despite any reduction in the interest rate or changes in market conditions, you will receive returns at the same interest rate as agreed upon at the start of the FD.

May help minimise portfolio risk

Different asset classes play various roles in your investment portfolio. Hence, this fixed-income product may add stability when you open an FD online using the Mobile or Net Banking facilities. This is because the returns offered by an FD are guaranteed. Hence, by diversifying your portfolio across various asset classes, including an FD, you could ensure that alterations in your returns can be minimised.

Flexibility to withdraw funds

Banks usually allow you to withdraw your FD before maturity. While you may pay a penalty, the flexibility to access your funds whenever needed makes this Term Deposit quite beneficial during a financial emergency.

Good choice for short-term goals

Financial goals you want to achieve within one to three years of investing are referred to as short-term goals. They aim to preserve the principal amount while earning little interest simultaneously. In such cases, opening an FD using the Banking app offered by your bank might be a good choice.

Select Cumulative or Non-Cumulative FDs

When opening an FD, you can opt for a Cumulative or a Non-Cumulative FD. This choice lets you decide when you want the interest income from your FD. So, if you wish to receive the interest income in monthly, annual, half-yearly, or quarterly payouts, you can select a non-cumulative FD. Alternatively, you could choose a cumulative FD if you want the interest income at maturity.

Conclusion

From the above points, it is pretty clear why opening a Fixed Deposit Account can be an excellent addition to your investment portfolio. However, keep in mind your investment horizon, financial goals, and risk appetite before making investment decisions.