How well can you handle risk? Are you prepared to see your funds dip and soar? Your answers to these questions determine whether you should invest more in fixed deposits or in equity.
What if someone told you that if you invested in shares of a company in 2011, your money would have earned interest of 17% compounded annually by 2017? It would certainly be pique your curiosity. But, don't forget that when investing in equity, you never know if you'll win or lose. Does this mean that you should be steer clear of equity investments all together? Not necessarily.
It all depends on how capable you are to absorb financial risk. If you have the financial backing to absorb a loss, you are more likely to bounce back when compared to someone who has parked all of their savings in equity. If a low-risk investment is what you seek, maybe consider investing in a fixed deposit.
Here’s a comparison between fixed deposits and equities to help you make the right choice:
Understand the options:
When investing your money in equity, it is helpful to know exactly what you are signing up for. Think of it this way:
Can you play a game of chess without knowing how the various pieces move on the board? Certainly not.
Similarly, it is important to familiarise yourself with terms such as stock market, indices, share price, short selling, margin, etc. You must also spend time researching the company you’re investing with. What kind of business is the company engaged with? What is its scope for growth? In this regard, fixed deposits are certainly easier to understand.
Prepare for the long haul:
Stock market investing is not for the impatient. If you think you can gain a lot by buying stock on the basis of your friend's advice, you're approaching the investment incorrectly. It takes time for your investment to pay off and there is no assurance as to when this will happen. So think about whether you are you prepared to wait it out. Fixed deposits, on the other hand, give you assured returns that you can claim monthly, bi-annually or annually, depending on the type of FD you choose. So they can come to rescue for short-term needs.
Don’t use past records to predict the future:
The very fact that the Sensex has experienced several highs and lows in the past decade is testimony to the fact that investing in equity is volatile business. If an element of uncertainty is not your cup of tea, take the safer route and invest in FDs.
Investing in the stock market isn’t ideal for everyone. It requires some knowledge of the market and constant monitoring of your investment. If you want to play safe, go for risk-free investment tools such as fixed deposits.
With stable ratings from CRISIL and ICRA, lucrative interest rates on FDs and other features like online account access, Bajaj Finance offers the most safe investment option with its Fixed Deposits. You can look for assured returns, greater flexibility and stable returns. Senior citizens can look for a higher interest rate with Bajaj Finance Fixed Deposits, which enables them to grow their retirement corpus.
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