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Diversifying Investments With Multiple Types Of Fixed Deposits


by Mahindra Finance


February 23, 2024


5 mins read

Who doesn’t wish to grow their money with minimal risks? Everyone appreciates those extra gains. However, each FD investment carries some risks. But, the advantages of FD far outweigh the risks.

A fixed deposit scheme lets you invest your funds in a controlled manner. You decide the amount and the period. Your return rate stays fixed, unaffected by market fluctuations. This feature attracts many cautious investors as you know exactly what to expect from an FD investment.

The advantages of FD don’t stop there. You can even use fixed deposits to diversify your portfolio and balance risk and returns. While diversification discussions usually revolve around stocks, bonds, mutual funds, and real estate, fixed deposits are an equally effective tool. Here is how:

Diversifying between different types of fixed deposits

If you want to maximise the benefits of fixed deposits and use them to diversify your portfolio, you need to understand the different types available:

Cumulative and non-cumulative fixed deposits

FDs can be cumulative or non-cumulative. In cumulative FDs, the interest is reinvested and paid along with the principal at maturity, leveraging compounded growth over time. On the other hand, in a non-cumulative FD, the interest is not added to the principal amount. Instead, you receive regular interest payments, which act as a steady income source.

By diversifying between these types, you can achieve both capital appreciation and income. For example, you can invest in a cumulative FD to build wealth over time and a non-cumulative FD to get regular interest for your expenses.

Short-term and long-term FDs

Another way to diversify your portfolio is by splitting your investment into both short-term and long-term fixed deposits. Short-term FDs typically have a tenure of 1 to 3 years, while long-term FDs can go up to 10 years. By allocating a portion of your funds to each, you can benefit from different interest rates and liquidity options.

For instance, you might invest a portion in a 1-year FD to meet any short-term goals and the remaining portion in a 5-year FD for high returns and stability. This approach allows you to enjoy both immediate and future benefits.

Tax-saving fixed deposits

A tax-saving fixed deposit investment can be a strategic tool to diversify your portfolio. When you invest in these FDs, you can claim a deduction of up to ₹1.5 lakh per financial year under Section 80C of the Income Tax Act, 1961.

Although tax-saving fixed deposits come with a mandatory lock-in period of five years, this lock-in period promotes long-term savings discipline. While the interest income earned on tax-saver FDs is fully taxable, the overall tax savings may outweigh the tax liability if strategically planned.

Laddering strategy

The laddering strategy is an effective way to manage and diversify your fixed deposit schemes wisely. Instead of putting all your money into one FD with a fixed tenure, you divide it into different parts and create multiple FDs with varying maturity periods. This method is like climbing a ladder.

By using the laddering strategy, you don't lock all your money at one interest rate. So, when interest rates go up, you can reinvest at a higher rate.


Diversifying your portfolio with fixed deposits is a wise strategy that combines safety with growth, helping you create a balanced approach to saving and investing. There are various types of fixed deposits to suit different financial goals and risk tolerance levels.

When considering fixed deposit features as part of your investment strategy, it's important to choose the right financial institution. Mahindra Finance offers attractive interest rates, flexible tenures, safe returns, and multiple interest payout options. By diversifying across multiple banks and exploring different types of fixed deposits, you can minimise risks and meet your liquidity needs effectively.

To start diversifying your investments today with Mahindra Finance Fixed Deposit schemes, visit the website or reach out to our customer service team for more information.


Q: What are the advantages of FD investment diversification?

A: Diversifying your investments across multiple types of fixed deposit schemes helps balance risk and returns. It allows you to take advantage of different interest rates, maturity periods, and income options.

Q: Can I diversify my FD investments across different banks?

A: Yes! It's recommended to spread your FD investments across multiple banks to reduce the risk associated with a single bank's financial stability.

Q: Are tax-saving fixed deposits a good option for diversification?

A: Tax saving fixed deposit features offer dual benefits of tax savings and long-term wealth creation. By investing in these FDs, you can diversify your portfolio while enjoying tax deductions under Section 80C of the Income Tax Act, of 1961.

Q: How can I choose the right type of fixed deposit investment for diversification?

A: Choosing the right type of fixed deposit depends on your financial goals, risk tolerance, and liquidity needs. Consider factors such as interest rates, tenure options, interest payout frequency, and any additional benefits offered by the financial institution.

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