Oftentimes, fixed deposits (FDs) and fixed maturity plans (FMPs) are pitted against each other because of similarities such as having to invest your money for a fixed duration of time. However, they are different from each other in more ways than one, and on the whole, FDs have the upper hand. Take a look at how they’re better than FMPs.
FDs offer assured returns
Since FDs are not linked to the market’s performance, the returns you obtain on an FD are guaranteed. You can also forecast these returns using a Fixed Deposit Calculator. For example, if you invest a sum of Rs.1 lakh for 5 years in an FD yielding returns at an 8%, you can use this calculator to know that on maturity, you will take home Rs.1,46,933.
On the other hand, returns promised by an FMP are not assured, but indicative. FMPs are debt-based vehicles that invest your finances in instruments like corporate bonds and commercial papers, and so, your returns may be higher or lower than the indicated amount.
FDs keep your finances safe from risks
Fixed deposits are one of the safest instruments you can invest your finances in. Both the principal and interest remain secure, and you earn a fixed FD rate through the tenor. While bank FDs keep your finances free from risks, company FDs like the Bajaj Finance Fixed Deposit are equally stable. This FD carries an ICRA rating of MAAA and a CRISIL rating of FAAA, the highest in their respective credit rating categories.
As they are linked to the market, FMPs are riskier. This is because the Net Asset Value (NAV) of FMP changes on a daily basis depending on how the economy is performing.
FDs offer liquidity through the tenor
While FDs require you to park your finances for a fixed tenor, you also have the option of earning consistently through regular interest payouts. Additionally, in case your finances are stretched thin, you can withdraw from your FD prematurely by paying a fee, or take a loan against your FD.
Since FMPs adopt a buy and hold approach, you do not have the flexibility to buy and sell units at regular intervals or employ a systematic withdrawal plan. As trading on the secondary market is prohibited before the end of the FMP tenor, your finances remain locked until maturity. While early redemption is a possibility, this may cost your investment.
FDs offer higher interest rates
Fixed deposits, like the one offered by Bajaj Finance, offer lucrative FD interest rates. In fact, as a new customer, you can fetch a rate as high as 8.75% on a 3-year Bajaj Finance FD with interest payable at maturity. This rate grows to 9.00% on renewal, and 9.10% if you are a senior citizen investing in an FD on the same terms.
On the other hand, FMPs offer interest rates going up to 8% or 8.5% for a 3-year tenor. However, this is a possibility and not a sure thing, so you’re better off choosing an FD.
FDs have a simpler application procedure
Investing in a fixed deposit is simple, straightforward and can be done anytime you wish to. All you need to do is visit your financier’s branch or website and fill out the FD application form.
In contrast, starting an FMP is more cumbersome. Firstly, you have to wait for a fund house to come out with a New Fund Offer (NFO). Failure to invest during the NFO dates means that you have to wait for the next offer to come by. Secondly, you need to verify the credit ratings of the securities that the fund house will invest your finances in. All of this makes an FMP more tedious to invest in.
Now that you know how an FD is better than an FMP, delay no more, and invest in one today!