Definition of Fixed Deposit: Type and Benefits | Motilal Oswal

Definition of Fixed Deposit

If your priority is to save up for your financial goals without taking too much of a risk while still getting guaranteed returns, then investing in a fixed deposit is the ideal way to go. Also, knowing what you’re likely to get as returns is also very easy as well. All that you need to do is use a fixed deposit calculator. 

 

If you’re someone who is interested in investing in such an investment option, but are unsure of the concept of how it works, then this article is for you. Here, we’ll take a look at what a fixed deposit is from start to finish. Let’s begin. 

 

What is a fixed deposit?  

A fixed deposit is essentially an investment scheme, where you invest a lump sum amount with a bank or a financial institution for a specified period of time. In exchange for depositing this lump sum, you receive interest at a certain percentage as a reward. At the end of the specified period of time, the financial institution returns your principal investment amount along with the interest accrued up until that point. 

 

Usually, unlike other forms of investments, the returns from a fixed deposit are guaranteed. What this essentially means is that the return that you get, which is the interest on your deposit, will not be dependent on the market or any other factor. To put it simply, you receive the advertised interest on the fixed deposit no matter what. If you’re interested in finding out just how much returns you’re likely to get from an FD, you can always use an online FD interest calculator. 

 

Also, fixed deposits are generally considered to be far safer than other forms of investment. The level of default risk on fixed deposits is quite low. That said, the default risk is not non-existent. You may still end up losing your investment capital if you invest in fixed deposits that are not highly rated. 

 

How does a fixed deposit work? 

Now that you’ve seen what a fixed deposit is, let’s take a look at how it works with an example. 

 

Let’s say that you have about Rs. 5,00,000. You wish to invest it in a fixed deposit scheme with a bank that offers an interest of around 8% per annum. Assume that the tenure that you wish to opt for is 5 years. 

 

Now, at the end of the tenure of 5 years, the bank will pay out Rs. 7,42,974. This includes your principal investment amount of Rs. 5,00,000 and interest for 5 years of Rs. 2,42,974. 

 

Conclusion

As you can see from the above, fixed deposit is one of the simplest and the most easy to understand investment options out there. All that you need to do is invest a certain sum of money for a specific period of time. That said, before you go ahead with investing in an FD, always make sure to use an FD return calculator to determine the amount of returns that you’re likely to get. This will help you make an informed decision. 

 

Alternatively, if you’re looking for other investment avenues, then the stock market might be something that you can look into. However, you would need to possess a demat account to start investing in the stock market. If you don’t have one already, get in touch with Motilal Oswal right away to open a demat account for free within a few minutes. 

Related Articles : Benefits of Fixed Deposits (FDs) in India | Debt funds Vs fixed deposits | 5 Tips to consider before Investing in High Interest Fixed Deposit | Why debt funds will continue to score over fixed deposits

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