Interest Rates and Other Factors to Consider before Investing

Interest Rates and Other Factors to Consider before Investing

While savings account provides nominal interest on deposits, market-linked instruments offer higher returns on investments. Still, a 2017-18 report showcases that savings account deposits accounted for over 32.9% of total deposits.

Smart investors, on the other hand, utilise fixed deposits, mutual funds and direct equity plans to grow their wealth. Before investing, you must perform two essential functions. 

First, use interest rate calculator India to determine the plans offering the highest returns. Secondly, consider the factors listed below –

Important factors that determine your investment experience

1. Weigh risk against reward

Each investor is different when it comes to risk appetite and goal. While some investors are content earning an interest of Rs.10,000 in a year, others are looking for more than Rs.1 lakh from their investment portfolio. 

Consider your risk and reward range before picking a plan. Fixed deposit instruments are ideal for low-risk, low-profit portfolio, while direct equity investment is best for individuals willing to take chances and earn big.

2. Interest rates

The rate of interest is perhaps the most critical factor when determining return on investments. Higher rates are always desirable. Nevertheless, riskier plans often provide the best rates. Thus, do not blindly pick the option offering the highest returns. 

Instead, use an interest rate calculator in India to determine the best available investment plan from amongst similar products. For instance, if you are looking for a suitable FD, utilise an online fixed deposit calculator. Similar online tools are available for other investment options, such as mutual funds, PPF, etc. as well.

3. Your age

The age of an investor can significantly influence their investment portfolio. For instance, the risk appetite reduces with investor age. A 23-year old investor can easily navigate riskier plans. However, a 45-year old man cannot be as open to risks. This is mainly due to the increase of financial liability with age.

Individuals in their later age are less likely to leave interest earnings to chance. Moreover, those nearing their fifties normally start to form a post-retirement corpus. At such a stage, he/she limits investment in risky plans drastically. If you are currently in this stage, the best option is to move your mutual fund investment into FDs.

4. Maturity period

Your age, risk appetite, goal and current financial strength also determines the perfect tenor for investments. Some individuals invest for only a few months, while others deposit their funds into long-term investments. 

If you do not lack sufficient liquidity, choosing longer tenor is beneficial in most cases. The objective of investing is also an essential determining factor when it comes to the maturity term. If your goal is post-retirement financial security, choose plans with greater tenor. 

On the other hand, if the primary reason for investment is funding your upcoming vacation, choose instruments with maturity between 6 and 12 months.

5. Tax benefits

Some investment plans allow you to avail income tax exemptions on your interest earnings. If you are trying to reduce the income tax burden, opt for investments which are eligible for tax deductions under Section 80C. 5-year tax-saving FDs are available in the market specifically for such purpose.

Keep in mind, when using an interest rate calculator in India, these online tools will not showcase applicable tax deductions when interpreting your interest earnings. 

Are fixed deposits the safest option for investment?

You cannot go wrong with FD investments, regardless of your age and income bracket. These investment options are the safest today because financial institutions rarely default on such interest payments. All you need to do is compare the FD rates in India to determine the best plans. 

Apart from the returns, fixed deposits also allow you to avail loans against these to deal with sudden expenses. The interest rate on such loans is often lower than the rates for personal loans.

In emergencies, you can also withdraw the deposit before maturity. After paying a small penalty fee, you can prematurely withdraw your investment. Keep in mind that such a withdrawal facility is unavailable in the event of tax-saving investment instruments.

Author info

Popular in similar categories: