Millennials who have begun to enter the workforce over the past decade have both borne witness to and been affected by the volatility of financial markets. Studies indicate that millennials have started saving and investing their money, but they do so conservatively, trying to stay away from risky investments, and that is with good reason.
When one visits a financial planner, the first order of business is the creation of an emergency fund – money set aside to pay for their expenses for a reasonable amount of time should an emergency occur. This emergency fund is almost always kept in safe investment avenues: fixed deposits with banks and /or liquid funds, which in turn invest in short-term market instruments.
Fixed deposits (FDs) are investment instruments offered by banks and non-banking financial companies, where you can deposit money for a higher rate of interest than savings accounts. You can deposit a lump sum of money in a fixed deposit for a specific period, which varies for every financier. Once the money is invested, it starts earning an interest based on the duration of the deposit.
The main reason fixed deposits are considered safe and looked at favourably is their guaranteed return on investment. India is witnessing a particularly harsh economic slowdown at the moment, and with both, foreign and domestic investors pulling out, the markets are facing a tough time, as are most investors who invested money in them. Fixed deposits, however, are a different ballgame. While the projected return on investment of fixed deposits are not as lucrative as other modes of investment, very few, if any, provide the security that fixed deposits do.
Over the past few years, we have seen markets fluctuate, and that is going to continue. No one can predict what is in store because that is the nature of markets – they are volatile. For example, last year, when lending giant IL&FS defaulted huge sums of money, their credit ratings plummeted, and there was a domino effect, with even liquid funds being affected. There have been many years where on average, at the end of the year, by virtue of having a guaranteed return, fixed deposits outperformed equity and debt funds.
Fixed deposits offer a guaranteed return on investment, and are a great secure option for millennials who are starting to save up. This is an ideal instrument to park your emergency funds in, keeping them safe.
Withstand financial slowdowns
As evidenced by slowdowns over the past decade and the one that is ongoing, markets are affected adversely, and one can not be sure about their investments in times like these. Fixed deposits afford you an opportunity to invest and know that you will generate a return on your investment for sure.
Better than savings accounts
Many individuals leave large sums of money lying stagnant in their savings accounts, accruing only small amounts of interests. Fixed deposits offer higher rates and the same security, making them ideal for parking money.
The interest in fixed deposits compounds. So, the interest one makes on an investment in the first year will be added to their investment, and the interest they make in the second year will be on a higher amount that has been compounded.
FD as collateral for loan
This is especially important for millennials that hope to get loans in today’s markets. Fixed deposits can be used as collateral for loans, so if one is looking to get a loan for appliances, education, houses or cars, they can use their fixed deposits as collaterals.
Can opt for regular interest pay-outs
One can also choose to a sum of money in fixed deposits and have the option of receiving regular interest payouts, cashing out the interest for expenses and leaving the principal invested in the fixed deposit to keep generating the interest regularly.
A survey conducted by YouGov in association with Mint found that one third of one-third of working millennials put their money in instruments that pose no risk, such as fixed deposits and recurring deposits, and avoid equity investments altogether.
As more and more millennials start working, we see that they are consistently investing their money in fixed deposits. These secure instruments for creation of wealth aren’t only for senior citizens – they are the instruments of choice of the prudent investor. You can head on over to Finserv MARKETS, which offers interest rates of up to 8.7% and flexible fixed deposit tenures upto 5 years.
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