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Fixed Deposit vs Equities Which is better

  • Highlights

  • Compare the two based on your liquidity needs

  • Consider payout frequency before making a decision

  • Check the rate of return before picking one over the other

  • Fixed deposits offer better stability than equity

Every investment has its own pros and cons. It is important to find a balance between them, to ensure that you get the most out of your money. Fixed deposits and equitiesare two such investment instruments that help you generate wealth in different ways.

While both could be a part of your portfolio, knowing which one to dedicate more funds to,will help you create an investment portfolio that works best for your needs. To get better clarity, evaluate both instruments on the basis of these 4 factors.

Market influences

Market forces include several factors such as demand, money in the economy, government borrowing, recession,and inflation. To a major extent, these market forces can influence the success of investments such asequity.So, if your risk appetite is high, or you are a young investor, investing in equity is a worthy move if you areafter high returns.
On the other hand, if your risk appetite is low, you’re closer to retirement or you need to balance out the high risk in your portfolio, pick fixed deposits. They are completely free of market influence and offer you guaranteed returns at a pre-decided rate.

Liquidity of the investment

If you anticipate a sudden need for funds, both equity and fixed deposits pass muster. Investing in stocks allows you to buy and sell them as and when you wish to. However, in case of fixed deposits, liquidity is likely to take a little longer. In exchange for a fine or charge, you can liquidate your FD prematurely.

Frequency of payouts

Another factor to consider is the frequency at which you receive payouts. When it comes to equity, you can enjoy the dividend income posted by the company at the end of the year. This payout will only happen if you hold on to the stocks for an entire year. On the other hand, fixed deposits offer you payouts at frequent intervals if you choose non-cumulative FDs. Here, you can choose a monthly, quarterly, semi-annual and annual payout period and you will receive interest income accordingly. This is ideal if you are retiring soon and are looking to create a source of income for yourself.

Reasons to invest in Fixed Deposits | Bajaj Finance |

 

The rate of return

Currently, fixed deposits come with an interest rate of7%–8%, which can go up to 8.20% based on the type of the fixed deposit and the financial institution that you choose. If you prefer assurance with regards to returns, fixed deposits are ideal as the rate is predetermined. With equity, the price varies from one stock to another and its value fluctuates constantly, sometimes, on an hourly or daily basis. So, pick equity if you’re prepared to deal with the uncertainty with regards to the rate of return.
So, choose between the two instrumentsbased on your requirements. What works for you as a young college graduate may not work for someone else who is on the verge of starting a family. Understanding your financial situation will help you make the best decision.

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