When thinking of investment, our minds may instantly jump to stocks, mutual funds or real estate. While they do offer potential growth opportunities for your money over time, they also involve varied risk factors. That is why for anyone aiming for a balanced and secure investment strategy, a fixed deposit comes as a safe alternative. Apart from just being a secure investment option, it also helps diversify your portfolio without feeling burdened or having any risk element attached. Explore this blog to know how you can diversify your portfolio with FD. Keep reading.
Why Diversification Matters In Investing?
Diversification means spreading your money across various investment mechanisms, including both high-risk and low-risk. This ensures that when one of your investments underperforms, the others act as a cushion. Fixed deposit offers that same low-risk fixed return investment that balances out the volatility of the other instruments in your portfolio. Today, many investors allocate a portion of their savings into FDs precisely for that purpose. It helps them remain stable during uncertain times.
How Fixed Deposits Can Diversify Your Portfolio?
How can you make the most of your fixed deposit investment? Here are some ways they help build a robust portfolio:
1. Balance Risk Stability:
A smart investment portfolio means creating higher returns and at the same time balancing risk and reward based on your financial goals. This is where FDs shine. They offer a fixed return over a selected tenure irrespective of the fluctuating market. So, while your stocks or mutual funds may keep changing, your FD keeps growing quietly in the background. This low-risk factor of fixed deposits serves as a reliable backup and adds much-needed stability to your overall portfolio.
2. Tenure-Based Diversification:
Why pool all your money in a single account when you can spread it in multiple FDs and avoid risk? That is the biggest advantage offered by a fixed deposit. One of the smartest ways to diversify with fixed FD is to spread your investment across different tenures. Use short-term FDs of 7 days to 1 year for greater liquidity, and long-term FDs that range between 1-10 years help in building wealth over time with better compounded returns. Some banks even offer special interest rates for unique tenures like 390 days, 700 days, or 23 months, etc. This gives you options to customise your FD ladder for both returns and liquidity.
3. FD Laddering
FD laddering is another proven strategy for portfolio diversification. Instead of investing a lump sum in a single FD, divide your investment across multiple FDs with staggered maturity dates. This way, your one fixed deposit matures every few months or years, helping you maintain liquidity while reinvesting at possibly better rates. This is how it works:
- You invest ₹1.5 lakh across 3 FDs — ₹50,000 each in 1-year, 2-year, and 3-year terms.
- Every year, one FD matures, giving you the option to reinvest or use the money.
- If interest rates rise, you benefit from the newer, higher rate upon reinvesting.
4. Multiple FDs = Multiple Goals:
Fixed deposits can also be structured around life goals like education, wedding planning or emergency funds. Instead of storing all your savings in one deposit, you can create separate FDs for each goal, each with its own maturity timeline.
For instance,
- FD 1: 2 years for sibling wedding
- FD 2: 5 years for a child’s school admission
- FD 3: 10 years for retirement or business venture
This approach not only keeps your savings organised but also reduces the temptation to dip into funds meant for another task.
5. Suitable for All Income Levels:
Fixed deposit works for people of all ages and income levels. Whether you are a salaried individual saving for a trip or a senior citizen planning a stress-free retirement, fixed deposits are designed for every stage of life. Many banks offer preferential rates for senior returns, which helps further maximise returns. Moreover, many banks and NBFCs allow you to start a fixed deposit with an amount as low as ₹500, making it accessible even for modest income portfolios.
Conclusion
Diversifying portfolio with fixed deposits is becoming a growing tool for investors who want safety with growth. It ensures that you are never too dependent on one asset or market condition. Plus, diversification helps avoid penalties in case you want to withdraw in case of financial emergencies. You can only break one FD while the rest remain stable. Fixed deposits may not make headlines, but they play a powerful supporting role in helping you build a flexible and reliable investment portfolio.
