From beginner to pro: A comprehensive guide to investing for long-term wealth

An investment is a tool that enables you to utilise money to earn returns and boost your wealth. Before you start investing, you must become familiar with the fundamentals as a novice. You can invest in various ways and make the greatest choices if you have a solid understanding of each type. Beginner investors may want to consider fixed deposits, savings accounts, bonds, mutual funds, stocks, PPFs, ELSS, ULIPs, and commodities, among other investment alternatives. Well, fixed deposits seem to be beneficial as there is no risk associated with them. Moreover, you can get the maximum interest rate on FD if you choose the FD plan and financial institution wisely. 

Many people invest in fixed deposits (FDs) as the safest place to keep their savings. This happens because when it comes to investing, the safety of the principal invested is the most important thing for most investors. Thereafter, they think about other aspects like interest rate, liquidity, and post-tax return. FDs should primarily be seen as a place to park money to maintain the capital. You can also take it as a way to build long-term wealth. Getting the maximum interest rate on FD is one of the crucial factors in building long-term wealth. 

Here are some things to think about if you decide to invest in an FD:

1. Interest rates- Different financial institutions will have different interest rates and tenures. The interest rate will be established once a deposit is made and will last until maturity. Top-ranking financial institutions like Bajaj Finserv provide greater interest rates. All financial institutions provide senior persons with a higher interest rate. The deposit certificate, known as the FD Advice, will be printed with the interest rate, time frame, investment amount, and maturity amount. 
2. Choice of tenure- Deposits can be made for just seven days or as long as ten years. Laddering one's deposits over time is a more effective approach to controlling interest rate risk and giving funds some liquidity. For instance, spread the money out into 1-3-5 year fixed deposits rather than locking it in for a year. Renew the shortest-term FD when it matures for the longest duration and continue the process. While doing so, make sure your regular income needs are satisfied. Also, make sure that your deposits are dispersed between financial institutions and various maturities.
3. Additionally, a given tenure may have a greater rate of interest. For instance, a financial institution may offer a 414-day fixed deposit or a 270-day deposit with the maximum interest rate on FD. Keep a watch out for such offers to earn extra money if the tenure fits your needs. Importantly, you must expressly choose the 5-year tax-saving FD if you desire to save tax under section 80C by investing in FDs. 
4. Choosing frequency of interest payments- One can decide to choose monthly, quarterly, half-yearly, or annual interest payments depending on their needs. Reinvestment mode is an alternative if someone doesn't require a steady income. In the latter, interest is paid at maturity together with the invested principal and is reinvested after quarterly compounding.
5. Premature withdrawal of deposits- You may close the fixed deposit before the initial term has expired. Interest will still be paid for the time the investment was held in the financial institution. You will get the interest at the rate in effect at the time of the deposit. A penal rate of interest set by the financial institution may apply to the deposit. Most financial institutions charge a 1% fee on the applicable rate for these types of early withdrawals. However, all financial institutions do not impose a penalty for premature withdrawal for FDs booked for a tenor of 7–14 days. 
6. Safety- The DICGC continues to provide insurance for fixed deposits. According to DICGC regulations, each depositor is insured up to a total of Rs. 1 lakh for principal and interest. 
7. Mode of investment- A fixed deposit investment can be made through various methods, including Internet banking or in-person visits to a nearby office. Certain financial institutions now provide avenues for investing in FDs via phone banking and ATMs.

FDs are a good choice for extremely conservative investors because they won't accept anything less than a guaranteed, fixed return with great safety. Additionally, retired investors who require a stable monthly income mainly rely on FDs. While security and fixed returns appeal to retirees, its simplicity of use also makes it a trustworthy option.

Additionally, everyone can use FDs to save emergency funds that can be accessible in a matter of days. Keep in mind that FDs should only be used in limited circumstances.