For the more conservative investors, the options to invest their savings are fixed deposits, government securities, pension schemes with fixed returns, among other financial instruments. It is imperative to have such securities in your portfolio – they bring the advantage of assured, fixed returns. In a way, such securities are a godsend for the rookie investor who wants his/her money to reap rewards but doesn’t have a huge risk appetite for the ups and downs of the market. But is it optimal to invest directly in government bonds as a retail investor? Will a fixed deposit serve your needs better? Which instrument will help you reach the goal-based portfolio with a proportion of investment that brings assured return? Let us take a peek into the personality of these instruments and answer these questions.
Why are Fixed Deposits and Government Securities so popular?
As mentioned before, both of these are great investment avenues for the conservative investor. Fixed deposits (FDs) bring a regular income in the form of interest, along with the principal amount upon maturity. These are a convenient and hassle-free mode for you to take control of your investments by combining stability and attractive returns. They require a minimum deposit and earn an assured interest that is paid out to the deposit holder. As a conservative investor, you may not like to be exposed to the market fluctuations and therefore, these instruments present an ideal opportunity. In fact, nowadays with Finserv MARKETS, you can apply for FDs, submit documents and keep track of your fixed deposit account online. You don’t even need to visit any branch or undergo a lengthy documentation process. Government securities are possibly the best-known alternative to Fixed Deposits even though the returns generated by government bonds are only slightly higher than a fixed deposit.
Let us compare the two more popular ones of the ‘safer’ financial instruments:
Fixed deposits and government securities for you to decide which one serves your needs better!
- Flexibility of Tenure of Investment: When you open a fixed deposit account with Finserv MARKETS, you get to choose an investment period that ranges from 12 months to 5 years. Once this period expires, you can choose to renew the FD. FDs have always been popular investment options that give the benefit of renewal and withdrawal. The fixed deposit renewal can also be done easily online. And if don’t want fixed deposit renewal, the maturity amount will be directly credited into your bank account.On the other hand, if you have a financial goal with a longer time horizon in mind that extends to more than 10 years, government securities are your answer.
- But there’s a catch here: investing in government securities depends largely on the government’s calendar, that is, when the government decides to issue these. So if you want to invest next month for a 10-year goal, you may not be able to just buy government securities. In fact, the Reserve Bank of India (RBI) may not even hold auctions for a few years at a time. The time of your need and supply needs to overlap, and thus, the flexibility to actually choose is lost. Choice is a fallacy when the instrument is seen in operation.
- Lock-in period: From the above point, it follows that the lock-in period for fixed deposit accounts, especially when opened with Finserv MARKETS, is flexible between 1 to 5 years. The lock-in time for the government securities is longer but this also means that they offer the investor the option of diversifying their portfolio for a longer duration.
- Taxation: In fixed deposits, the Tax Deducted at Source (TDS) is calculated by the financial institution and is paid into the requisite Government account depending upon the frequency of interest payouts to the investor. The TDS certificate is given to the investor on a quarterly basis. Whereas in the case of government securities, it is the responsibility of the investor to pay the necessary taxes on the interest income, if applicable.
- Senior citizen benefit: Fixed deposits score here as well. Finserv MARKETS offers fixed deposit rates for senior citizens that are as high as 0.35%, over and above the existing rates.
The decision to choose between fixed deposits and government securities is influenced by the investment goal, and mostly by the duration, it is intended for. If you do choose the former, consider Finserv MARKETS for the same – the FD rates range between 8% and 8.95%, with minimum deposit size of Rs 25,000. Processing it online allows you the flexibility of payment options through electronic or physical modes and access to all account details.
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