Fixed Deposits for Funding Major Life Events

Whether it's buying a car or house, or going on a dream vacation, we'll have aspirations that we want to achieve. To make our aspirations a reality, we need to have our financial goals aligned. This is where Fixed Deposits (FDs) come to the picture. FDs offer a stable and reliable investment channel that can help you save and grow your wealth in the long term. So, if you're just starting out on your investment journey and planning to save for major life events, opening a Fixed Deposit account could be the best option.

In this blog, we have focused on the potential of FDs for meeting long- and short-term financial goals. Additionally, we have provided essential financial planning tips.

Best Financial Planning Tips for Major Life Events

Here are some critical steps to make the most out of your investments for significant life events.

1. Define Your Goals

   Consider the specific events you anticipate in the coming years, such as buying a house, starting a family, or early retirement. Getting specific about your goals and estimating the costs involved is essential. For instance, if you want to purchase a house, research average prices for homes in your desired area or the expenses associated with your dream wedding or education. This would help you understand how much you need to save, at least for down payment, and how much home loan you would need. You may consider reading about the different types of home loans available in India for better understanding.

    

2. Assess Your Financial Situation

   Once you've defined your goals, it's time to assess your financial situation. Take a close look at your monthly income and expenses to determine if this is an ideal time to save for major life events. Before you start saving, ensure you have an emergency fund in place. Aim to set aside three to six months' living expenses in a high-yield savings account. This will provide a financial safety net and prevent you from dipping into your savings.

    

3. Create a Budget

   After assessing your financial situation, it's crucial to create a budget. Research the costs associated with your desired event, such as wedding expenses or a down payment for a house. Factor in every single cost to determine how much you need to save and for how long. Use online budgeting tools or apps to help you allocate your income and expenses effectively.

   Start by allocating a portion of your income towards investment instruments like Fixed Deposits. Consistent saving over time can yield significant results, even if you can only set aside a small amount each month. 

    

4. Start Investing in Fixed Deposits

   Now that you have set your goals and created a budget, it's time to start financial planning for these life events. Fixed Deposits and Recurring Deposits are an excellent option for short-term savings, like funding major life events.

    

   FDs provide fixed rate over a predetermined period. They are primarily used for capital preservation and stabilising your investment portfolio. Just so you know, Ujjivan SFB offers high-interest FDs ideal for growing your wealth in a safe and secure way.

There are several benefits of fixed deposits to fund major life events:

• Safe Investment: Fixed deposits provide guaranteed and safe returns. You don't have to worry about market volatility as you will earn the promised interest if you invest for the defined term.
• Flexible Tenure: You can customise the duration of your fixed deposit based on your needs. If you have planned a significant event in five years, you can keep a fixed deposit to cover your financial needs. FD tenure ranges from 7 days to 10 years.
• Liquidity: Fixed deposits are liquid assets that can be withdrawn early if necessary, although a penalty may be charged for early withdrawal. You can learn more about it here.
• Tax Benefits: Tax Saver Fixed Deposits offer tax benefits under Section 80C of the Income Tax Act. While the interest earned is taxable, you can claim a deduction of up to ₹1,50,000 for the amount invested. Please note that you can invest only up to ₹1.5 lakh in Tax Saver FDs. The lock-in period is 5 years.
• Loan and Overdraft Facility: Some banks offer loans against fixed deposits. You can borrow up to 90% of your principal and accrued interest as a loan against your FD. You can also opt for an overdraft against your FD. The interest is charged only on the drawn amount while the remaining FD continues to earn interest. Also, you don't have to pay back the amount in EMIs. Repay whenever you have funds. Just ensure to repay the amount before the maturity. 
• Flexible Interest Pay-outs: When investing in fixed deposits, you can choose how often you want to receive the interest. You can opt for monthly, quarterly, semi-annual, annual, or at maturity interest payments. Additionally, you can reinvest the interest earned and benefit from compound interest. 

Investment Example

Let's consider an example to understand how fixed deposits can help fund significant life events:

Rahul wants to buy a house in five years and estimates he needs ₹50 lakhs for the down payment. He decides to open a fixed deposit account with Ujjivan SFB with an interest rate of 8.25%. By investing ₹40 lakhs in the fixed deposit, he calculates that he will earn approximately ₹14 lakhs in interest over five years.

By the end of five years, Rahul will have a total of ₹56.5 lakhs (₹40 lakhs + ₹16.5 lakhs) for his down payment.