Maximizing your Investments with Foreign Currency Fixed Deposits

Maximizing your Investments with Foreign Currency Fixed Deposits


Portfolio diversification is crucial for investors seeking a high-risk-adjusted return. One valuable financial tool for achieving this objective is the Foreign Currency Fixed Deposit, which effectively minimises overall portfolio risk.

Understanding Foreign Currency Fixed Deposits

A Foreign Currency Fixed Deposit (FCFD) is a safe investment option for both, residents and Non-Resident Indians (NRIs). This fixed deposit account offers the opportunity for NRIs to invest their funds in a variety of foreign currencies of their choosing, within an Indian bank. It also offers the potential for higher returns on their investments. It is important to note that once funds are deposited into this account, they cannot be withdrawn until the fixed term expires.

Advantages of Foreign Currency Fixed Deposits

FCFDs offer a lot of advantages that can help in financial planning. They are:

  1. Currency Diversification and Risk Management : When investors deposit in an FCFD, they aim at mitigating the forex rate and exchange risk. This helps in times of domestic economic fluctuations.
  2. Higher Interest Rates and Potential Returns : The interest rate offered on FCFDs is generally higher than domestic deposits. The possibility of earning higher returns makes FCFDs an attractive option.
  3. Access to Global Markets and Opportunities : FCFD investments give investors the chance to widen their investment horizon to international markets and exploit global opportunities.
  4. Tenure Options and Flexibility : FCFDs offer flexible investment durations. Investors can choose the tenure depending on their short-term or long-term goals.
  5. Taxation and Regulatory Considerations : The interest earned FCFDs in India is exempt from tax.

Factors to Consider Before Investing in Foreign Currency Fixed Deposits

There are a few important factors to be considered before one invests in an FCFD. They are:

  1. Interest rate : Be sure to compare the interest rates on FCFDs of various banks before investing.
  2. Investment horizon : Check the investment duration of the FCFD and choose the duration based on liquidity requirements and financial goals.
  3. Economic conditions : One must always evaluate the economic condition of the country - the currency in which they wish to invest. Always consider factors like inflation rate, political stability, and GDP.
  4. Risks and costs : Have a clear understanding of the currency fluctuation risks associated with and the costs involved in currency conversion.
  5. Taxes and regulations : One must familiarise themselves with tax implications and regulatory framework when investing in an FCFD. Consulting with a financial expert before taking the plunge is advised.

How to Open a Foreign Currency Fixed Deposit Account

The FCFD account can be opened either online or by visiting the branch. Opening a Foreign Currency Term Deposit with Federal Bank has two simple steps:

  1. The investor must download the IBU GIFT City Retail Term Deposit application form from the website of Federal Bank. 
  2. Once the form is duly filled, it can be submitted online via email.
  3. The investor can also get in touch with the relationship manager by visiting their nearest branch.

Managing and Monitoring Your Investments

Investors must conduct a periodic review of their FCFDs and stay updated on economic and global developments and other factors that can impact their investments. They must also consider the various risks associated with such investments and consider diversification of their investments across various countries and currencies to mitigate the risk. 

Conclusion 

Incorporation of FCFDs in one’s investment strategy is a great way to enhance the investment portfolio, as these instruments offer investors the opportunity to earn higher returns and get access to international markets. Armed with FCFDs and a mix of other investment options, one can create an investment portfolio that can capitalise on both domestic and global opportunities. Visit Federal Bank today to know more about their Foreign Currency Term Deposit.