Why Fixed Deposit (FD) is not a good Option for Investors (2024)

FAQs

Why Fixed Deposit (FD) is not a good Option for Investors? ›

In summary, while FDs offer a safe investment option, they may not be the best option for all investors as they offer lower returns, lack of flexibility, no tax benefits, and opportunity cost.

"FDs are not a good investment option because of the poor 'real' returns, i.e., returns after inflation and taxes, which will almost certainly be negative in most cases. On 8% FD, a taxpayer in the 30% slab will pay 10% TDS on FD interest and 20% taxes when they file their tax returns.

Liquidity Risk: FD interest rates stay fixed, so if rates rise after your investment, you won't benefit from higher rates. Inflation Risk: Inflation can erode the value of your FD returns over time, causing a real loss in purchasing power.

Unlike market-linked investments, FDs are not subject to market volatility. Thus, your invested principal remains secure regardless of market fluctuations. This makes FDs an ideal choice for risk-averse investors.

Public Provident Fund (PPF) PPF is a government-backed long-term investment option for risk-averse investors to earn fixed interest rates decided every quarter by the Finance Ministry. The minimum tenure of a PPF account is 15 years, extendable in blocks for five years after that.

The short answer is no: FDs are not entirely risk-free. While they are considered safer than many other investment options, there are still some risks to be aware of. Interest Rate Risk: FD interest rates are fixed at the time of investment.

It depends on your financial goals and risk appetite. If you are looking for an investment with low-risk exposure, fixed deposits would be the safer bet for you. However, if you are looking for reasonable returns alongwith high risk, you should consider investing in mutual funds.

As per the current Income Tax rules, the exemption limits vary based on the age and taxable income of the depositor. The exemption limit for TDS on FDs is Rs 40,000 for individuals excluding senior citizens. This means TDS will not be deducted if the interest earned on an FD in a financial year is below Rs 40,000.

Is fixed deposit interest taxable in India? According to the Income Tax Act, 1961, interest on FDs is treated as 'income from other sources' and hence, is fully taxable. The FD interest earnings are included in your gross annual income, and the tax liability is estimated, following the prevalent tax laws.

1. High upfront investments. Acquisition and installation of fixed assets require substantial upfront expenses. These cash outflows can negatively impact the company's immediate cash flow and financial stability.

What is the best option for fixed deposit? ›

It is always wise to do your research before you go ahead and invest. Keep an eye on interest rates which will help you understand when they're high and low. You can thus avoid investing at a lower rate of interest. When the rates are high, invest more significant amounts for a longer period of time.

Both gold and fixed deposits are low-risk investment options and provide guaranteed returns. A gold investment offers high returns along with the flexibility to buy and sell it easily. If you wish to gain substantial returns over time and save on tax, you should opt for gold investment.

One such promising avenue for investment is the Sovereign Gold Bonds (SGBs) offered by the Reserve Bank of India (RBI). Investing in SGBs provides a hedge against inflation, unlike PPFs or FDs, which have been hit by inflation over the years.

Revamped Gold Deposit Scheme (R- GDS) is in the nature of a fixed deposit in gold. The customers can deposit their idle gold under R- GDS which will provide them safety, interest earnings and a lot more.

1. Difficult for New Companies: It is generally difficult for new businesses to raise funds through public deposits. 2. Unreliable Source: It is an unreliable source of finance because the public may not respond when the company requires funds. Deposits may not respond in a capital market collapse.