How Fixed Deposit Can Safeguard Your Retirement Funds

Introduction

Planning for retirement is an important financial step that requires careful consideration and strategic investments. While there are various investment options available, fixed deposits (FDs) play a significant role in safeguarding your retirement funds due to their stability, reliability, and guaranteed returns. 

In this article, we will explore 4 reasons why fixed deposit is an essential part of your retirement portfolio and how it can provide you with a financially secure future.

Reason 1. Low Risk and Stable Returns

One of the key reasons why fixed deposits are preferred for retirement planning is their safety and stability. Unlike market-linked investments that are subject to fluctuations, FDs provide a secure avenue for preserving your capital. 

The principal amount you invest in an FD remains intact regardless of market volatility, ensuring that your hard-earned money is protected. This stability makes FDs an ideal choice for risk-averse investors who want to safeguard their retirement funds.

Reason 2. Guaranteed Returns

Fixed deposits offer guaranteed returns, which is particularly appealing for retirees who prioritise a predictable income flow during their post-retirement years. The FD interest rate are fixed at the time of investment, allowing retirees to calculate and plan their future income accurately. 

This predictability helps in budgeting, managing expenses, and ensuring a comfortable lifestyle throughout retirement.

Reason 3. Regular Income Stream

Fixed deposits can be structured to provide a regular income stream during retirement. Retirees can choose to receive interest payouts at regular intervals, such as monthly, quarterly, or annually, depending on their cash flow requirements. By opting for regular interest payments, retirees can cover their day-to-day expenses and maintain a consistent standard of living without depleting their principal amount.

Let's say Rajesh, a retiree looking for a steady income during retirement, invests ₹15 lakhs in a fixed deposit with an interest rate of 6% per annum. He chooses to receive quarterly interest payouts. As a result, Rajesh will receive ₹22,500 every quarter as an additional source of income throughout his retirement period.

Reason 4. Diversification and Risk Management

Retirement planning involves diversifying investments to mitigate risk and ensure a balanced portfolio. While it is advisable to have a mix of asset classes, including equities and real estate, fixed deposits offer an essential element of stability to the overall portfolio. They act as low-risk assets that help retirees preserve capital and reduce exposure to market volatility.

Tax saving FD options in India

Fixed deposits can also offer tax benefits, depending on the prevailing tax laws in your country. In India, under Section 80C of the Income Tax Act, any investor can claim tax deductions amounting up to ₹1.5 lakhs per year with tax saving FDs. 

However, tax saving FD come with a lock-in period of 5 years, during which no premature withdrawal, loan, or overdraft facility is allowed.

Conclusion

Fixed deposit offer multiple benefits that make them an excellent choice for safeguarding your retirement funds. Their ability to remain unaffected by market fluctuations, flexibility in investment options, and tax-saving benefits make them a valuable addition to your investment portfolio.

To safeguard your retirement funds with FDs, start by exploring different banks' FD interest rates and calculate potential returns using an FD interest calculator. 

Remember to look for competitive FD interest rates, flexible tenure options, and hassle-free account opening processes like those offered by Mahindra Finance's fixed deposits. 

With Mahindra Finance, you can earn up to 8.10% interest p.a. So, optimise your wealth growth and secure your retirement funds effectively.

FAQs

1) What is the minimum deposit amount for a fixed deposit?

The minimum deposit amount for a fixed deposit varies from bank to bank but typically ranges from ₹1,000 to ₹10,000.

2) Can I withdraw my money from a tax saving FD before the completion of the lock-in period?

No, tax-saving FDs come with a lock-in period of five years during which premature withdrawals are not allowed. It's essential to consider this before investing in such FDs.

3) Are the FD interest rates on fixed deposits fixed throughout the tenure?

Yes, the FD interest rates on fixed deposits are fixed at the time of investment and remain constant throughout the tenure.

4) How can I calculate the interest earned on my fixed deposit?

You can use an FD interest calculator available on most bank websites or financial portals to determine the interest earned on your fixed deposit based on the principal amount, tenure, and applicable interest rate.