How to Create a Balanced Investment Portfolio with FDs and RDs

For individuals, a balanced investment portfolio is the key to financial stability and growth. The most popular option for creating a portfolio is by investing in fixed deposit (FD) and recurring deposit (RD). These two reliable investment options provide consistent returns irrespective of market conditions. 

Benefits of FDs and RDs

Both modes of investment offer certain benefits and can be used for different purposes. To understand how we can create a balanced portfolio with fixed deposit and recurring deposit account, we must first understand the benefits offered by them.

Fixed Deposits (FDs)

Fixed deposit accounts are ideal for those who want to invest a lump sum amount for a fixed period. They offer guaranteed returns and are not affected by market fluctuations. This option is ideal if you are looking to preserve your investment. With flexible tenure options and competitive interest rates, FDs can be tailored to fit various financial goals.

Recurring Deposits (RDs)

Recurring deposit accounts let you invest a fixed amount regularly and earn interest that is comparable to FDs. It is an excellent way to create disciplined savings while simultaneously enjoying returns on your deposits. Recurring Deposits are ideal for medium-term financial goals.

Steps to Create a Balanced Portfolio with FDs and RDs

Strategically integrating FDs and RDs will help create a balanced portfolio that offers liquidity, growth and safety. Follow these steps to create your own balanced portfolio:

• Define Financial Goals

The first step in portfolio planning is to clearly define your financial goals and determine the time frame needed to achieve them. Whether your objectives are short-term, medium-term, or long-term, allocating funds appropriately is crucial. For instance, Fixed Deposits (FDs) can be an excellent choice for securing long-term goals, such as building a retirement corpus, due to their stability and guaranteed returns. On the other hand, Recurring Deposits (RDs) are well-suited for medium-term plans, like saving for a house or vehicle purchase, as they promote regular savings while offering reasonable returns.

• Allocate Funds Strategically

By dividing your investments based on priorities one can invest more strategically. Consider splitting your funds across different FDs for each long-term goals ensuring staggered maturities. While RDs can address monthly savings requirements, which helps maintain liquidity for unexpected expenses.

• Compare Interest Rates and Tenure Options

Evaluate the interest rates and tenures offered by various financial institutions to maximize your returns. Selecting options with favourable rates and align them with your financial timeline to ensure an optimized portfolio. Additionally, plan for a mix of short-term and long-term FDs to provide both immediate access and sustained growth.

• Incorporate Tax Planning

The interest earned from FDs and RDs is taxable under your income tax slab. To minimize tax liability, consider investing in tax-saving FDs under Section 80C of the Income Tax Act. Awareness of taxation can help you better calculate net returns and make informed decisions.

Optimize Your Portfolio Beyond FDs and RDs

While fixed deposit and recurring deposit accounts offer stability and predictable returns, incorporating other investment options can enhance your portfolio’s growth potential. For example, mutual funds, stocks, or bonds can complement the safety of FDs and RDs with higher returns, albeit with varying levels of risk. A well-diversified portfolio balances these elements to suit your risk appetite and financial goals.

Conclusion

A balanced portfolio requires regular monitoring to ensure it remains aligned with your objectives. Changes in financial circumstances, market conditions, or interest rates may need adjustments. Periodic reviews help you find underperforming assets and reallocate funds to maintain the desired balance. Fixed deposit and recurring deposit accounts are essential tools for creating a balanced investment portfolio. Their low-risk nature, predictable returns, and flexibility make them ideal for achieving financial stability. 

To make the most of these investment options, consider opening FD and RD accounts with a trusted bank like DBS Bank, which offers competitive interest rates, instant and paperless account opening, flexible tenures and more. Start your investment journey today by opening an account online or visiting the nearest branch.