How HNIs Can Grow Their Wealth with Fixed Deposits

High Net Worth Individuals (HNIs) have unique financial needs and seek optimal wealth management solutions. Since debt funds are not tax efficient anymore, HNIs are shifting to Fixed Deposits (FDs) as their preferred choice of fixed income instrument. 

In this blog, we have explained how HNIs can ensure wealth growth in a safe and secure way via FD investments. Let's dive in!

Benefits for HNIs When Investing in FDs

Investing in Fixed Deposits offers several advantages, making them a popular choice for HNIs, especially those seeking low-risk options. Here are the advantages of investing in FDs for HNIs:

1. Guaranteed Returns

   FDs provide a fixed interest rate over the investment period, ensuring predictable and stable returns. This characteristic makes them an attractive option for conservative investors who prioritise capital preservation over high-risk investments.

    

2. Higher Interest Rates

   Compared to traditional savings accounts, FDs typically offer higher interest rates. This allows investors to maximise their savings with minimal risk, as the interest is calculated using the compound interest method, leading to potentially greater returns at maturity. There are FDs specifically meant for HNIs offering higher interest rates compared to regular FDs.

    

3. Safety and Security

   FDs are considered low-risk investments, as defaults are unheard off. In India, deposits up to ₹5 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), providing an additional layer of security for depositors.

    

4. Flexible Tenure Options

   Investors can choose from a wide range of tenures, from as short as 7 days to as long as 10 years. This flexibility allows individuals to align their investments with their financial goals, whether short-term or long-term.

    

5. Convenient Access to Funds

   While FDs typically lock in funds for a specified period, they also offer liquidity options. Investors can withdraw funds in emergencies, although this may incur penalties for premature withdrawal. Some banks provide callable FDs, allowing for easier access to funds if needed.

Fixed Deposit Strategies for Better Wealth Management 

In order to make the most of your fixed deposit investments, here are some fixed deposit strategies for HNIs:

1. Diversify Your Investments

   Example: Let's say Dhaval, an NRI has ₹10 lakhs to invest. Instead of putting the entire amount in a single FD, he can consider diversifying his investments across multiple FDs, with each deposits being lesser than ₹5 lakh. This strategy helps mitigate risks and ensures that even if the bank faces financial difficulties, his entire investment portfolio remains secure.

    

2. Opt for Cumulative FDs

   If you don't require regular interest income and are looking for higher overall returns, consider opting for cumulative FDs. In cumulative FDs, the interest is compounded and reinvested until maturity, providing a lump sum payout at the end.

    

3. Evaluate the Interest Rates

   Before investing in an FD, compare the interest rates offered by different banks or financial institutions. This will help you choose the option that offers the highest returns on your investment. Ujjivan Small Finance Bank offers Platina Fixed Deposit - an FD specifically designed for HNIs. The interest rate offered is comparatively higher than regular Fixed Deposits.

    

4. Use a Fixed Deposit Calculator

   To accurately estimate your returns from an FD, use a fixed deposit calculator. These online tools take into account factors such as the principal amount, tenure, and interest rate to calculate the maturity amount and interest earned.

    

5. Evaluate Premature Withdrawal Penalties

   Before investing in an FD, carefully review the premature withdrawal penalties imposed by the bank or financial institution. If you anticipate needing access to your funds before the maturity period, choose an investment option that offers flexibility without hefty penalties.