Fixed Deposit Ladder Technique: Fixed Deposit (FD) is a traditional method of investment, considering it safe, investors deposit their deposits in it to get returns at a fixed interest rate. FD schemes come with multiple maturity dates. At the same time, interest rates are also different for different maturities. Now a smart investor can take advantage of this to maximize his returns on FD. For this, investors use FD laddering. Now the question arises that how can you get maximum interest on Fixed Deposit of different tenures?
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What is FD Laddering?
Fixed deposit laddering is a method of investment which is used to improve returns as well as maintain liquidity. In FD laddering, instead of blocking all his funds in a single scheme, an investor can create multiple FDs with different maturity dates.
That is, FD laddering is a technique in which investors have to open multiple FD accounts, which have different maturities. For example, if you have Rs 20 lakh, which you want to make a fixed deposit, then first divide it into 5 different parts. Now deposit every Rs 2 lakh in FD schemes with maturity of 1 year, 2 years, 3 years, 4 years and 5 years. With this, you will get money from time to time, which you can spend as per your need.
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How does this strategy work?
FD is like building a ladder. Through this, you divide your money among several FD schemes with different maturity periods. If you have Rs 10 lakh for investment then you can divide it into 5 different parts. One part is distributed in 6 month FD, second part in 1 year FD, third part in 2 year FD, fourth part in 3 year FD and fifth part in 5 year FD.
Now in the next step, each deposit amount matures at different times. Your first in 6 months, second in 1 year, third in 2 years, fourth in 3 years and fifth in 5 years. What you have to do in the next step is that after maturity, if you do not need it, you can deposit the amount received along with interest in the same scheme again. In this way a ladder of FD is created. There you can get maximum return on your FD. In the long run you will have a good amount of funds with this strategy
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Liquidity will be easy
This advantage of FD laddering is huge. In this, as your FD matures, your deposit will continue to be received by adding interest every year i.e. 1 year, 2 years, 3 years, 4 years and 5 years. That means every year a big amount will come into your bank account. Therefore, if you suddenly need money, you will not have to break your FD. FD with shortest maturity can be used in that emergency. If you need money after maturity, then use it and then put the remaining money in FD.
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Why do FD laddering?
high interest earning
Get rid of the tension of increasing or decreasing interest rates
liquidity without loss
Flexibility
risk management
To meet your investment goals in the long term
for tax saving
Keep these things in mind before laddering FD
need for liquidity
Where is the interest rate higher?
Penalty on early withdrawal
tax rules