Investments: India has a strong bond with fixed deposits (FD), says brokerage firm Zerodha

Brokerage firm Zerodha on Tuesday noted that fixed deposits (FD) are the most favoured instrument of investments in India. Sharing a dataset on the investment trends in 2023, Zerodha noted that from April 2023 to January 2024, i.e. the first nine months of the FY2024, a total amount of Rs 17.55 lakh crore was invested in fixed deposits, vis-a-vis, Rs 3.96 lakh crore in mutual funds and Rs 2.27 lakh crore in small savings funds. 

Fixed Deposits (FDs) serve as a fundamental pillar in financial planning for a vast number of people within India, providing steadfast and predictable investment return. The intrinsic value of a fixed deposit is embedded in its capacity to yield pre-established returns while maintaining the integrity of the principal sum. As per estimates, fixed income investments in India account for approximately 70% of all investment assets, indicating their widespread popularity and importance in financial planning and their benefits.

Investors can be sure that their funds are not impacted by market volatility. To further augment FDs’ appeal, banks have introduced flexible options for interest payments – be it at regular intervals or upon maturity - thus accommodating an array of individual financial strategies. This amalgamation of features, which include guaranteed returns and flexibility, renders Fixed Deposits an ideal choice particularly for those with restrained risk tolerance or rudimentary understanding about market dynamics. Besides, senior citizens can earn an extra 0.50% to 0.75% rate of interest on FD investments than others.

In 2022-2023, the Reserve Bank of India (RBI) has increased interest rates to combat inflation. This has led to higher borrowing expenses, prompting individuals and businesses to save more, thus pushing up interest rates on savings tools like FDs.

Individuals aiming for higher FD rates in 2024 should consider the impact of consecutive repo rate hikes from May 2022 to February 2023. These hikes influenced FD rates significantly as banks raised lending rates due to increased borrowing costs from the RBI, resulting in higher FD rates to attract deposits. 

A joint study by DBS Bank India and rating agency Crisil also stated that women earners in India's metros tend to be risk-averse with 51 per cent of their investments parked in fixed deposits (FD) and savings accounts, followed by 16 per cent in gold, 15 per cent in mutual funds, 10 per cent in real estate and just 7 per cent in stocks.

FD investments in India now offer high-interest rates of 8.5% to 9.36% annually, approaching record levels. Currently, small finance banks (SFBs) are offering significantly higher FD rates than public sector banks and private banks, making fixed income investments more appealing. These fixed deposits play a crucial role in long-term wealth creation by providing stable income, capital preservation, and diversification benefits. 

But one should note that a well-balanced portfolio, containing fixed income and higher-risk assets like stocks and mutual, is essential to boost long-term gains and a secure sound financial future.