Fixed deposits are an important investment that helps in hedging your investments in other avenues like stocks, mutual funds, and more. Fixed deposits are undoubtedly the popular pick for its lowest risk profile with a guaranteed return on investment. Although the return isn’t sky-high, it is significantly at par with most market-based instruments.
While you are spreading your risk by apportioning a considerable portion of your investments in fixed deposit schemes, you must take into consideration the below-mentioned points at each renewal. They will help you evaluate the returns from your investment in fixed deposit schemes.
Consider your immediate requirements
You had earlier invested for a specified duration in a fixed deposit scheme. At renewal, it becomes important whether your financial goal has been met by other cash reserves or not. If not, withdrawing the fixed deposit would be a wise move. But in case your other commitments have been secured by consistent cash flows, it is advisable to renew your present fixed deposit to the next estimated time frame where you might need funds.
Evaluate your investment portfolio
When it is the maturity for your FD, you must revisit your portfolio. You need to reconsider your risk appetite and financial priorities. If your retirement is due shortly, you may consider maintaining a lower risk profile and accordingly reinvest in fixed deposits. Whereas if your objective is to increase your corpus for retirement planning, you may consider investing in investments that offer higher returns while assuming a higher risk.
Account for current market trends
Changing economic situation impacts the FD interest rates. This will have an impact on your corpus accumulation for your financial objectives. In recessionary times, the most advisable option will be to renew your FD. This is on account of unfavourable market factors that make it hostile for investment in other investments. Factoring such market scenarios makes it easy to understand whether renewing your fixed deposit is worthwhile or not.
Interest Rate offered on Renewal
Fixed deposits have a specific rate of interest to them for the duration of the investment. Such FD rates change at the time of renewal only. You must consider the rate of interest being offered at renewal while accounting for other investments with similar risk. This will help you in maximizing the return on investment for other investments with similar risk levels.
Credit Rating of the Financing Company
In the case of Non-Banking Finance Companies (NBFCs), it is vital to keep a check on the credit rating assigned to the investment tool by reputed credit rating agencies. These credit ratings are periodically revised and which is why it is important to consider at the time of renewal.
These are some points that you need to keep in mind while renewing your fixed deposit investments. Make sure it is suitable for you and your investments goals after which you opt for its renewal.