2 min read
25 May 2021

Gold ETFs and fixed deposits are popular investment options that suit investors with varying requirements. Investing in a gold ETF means purchasing gold in an electronic format. On the other hand, fixed deposits involve depositing a sum of money in an account and gaining rates of interest over that amount.

Suppose you are an investor with a healthy risk appetite. In that case, you could be comfortable investing in a gold ETF, as these investments are under the influence of fluctuating market forces of supply and demand. If, however, you are a risk-averse investor seeking a form of investment, fixed deposits could be a better option for you.

Additional Read: Best investment plan for 3 years

Attributes and advantages of investments in Gold ETF

  1. Gold ETF involves investing money in the electronic form of gold. This means purchasing a certain quantity of gold online and reselling it according to your preference
  2. It is a highly flexible option. You have complete freedom to choose the amount of money you wish to invest and even the freedom to choose the tenor
  3. It has an advantage over inflation as gold prices are constantly increasing
  4. Maybe slightly risky as prices for gold are under the direct control of volatile market forces like supply and demand. However, gold ETFs are less risky when compared to trading actual gold
  5. The rising demand for gold worldwide can counter the above point and provide some safety to the investment
  6. May or may not provide periodic returns. This would be entirely up to you when you choose to sell
  7. Requires investor to have immense instinct and experience of the market makers and the market forces
  8. Returns from these dealings may be heavily taxed, depending on your profits, income, and returns

Attributes and advantages of fixed deposit investments

  1. This option involves investing a sum of money in an account to gain interest over a tenor. It is a highly flexible option. You have complete freedom to choose the amount of money you wish to invest and even the freedom to choose the tenor
  2. An FD may or may not be flexible, depending on your lender. In this option, you choose whether you want periodical returns or cumulative returns at the end of the tenor. You can also opt for a functional FD calculator by Bajaj Finance that helps you compute your interest gains
  3. This option has many subcategories that you can review and choose from. The various categories of FDs are cumulative FD, and non-cumulative FD
  4. Investors who seek to gain tax-free returns can always explore the option of tax-saving FDs
  5. A fixed deposit is usually liquid and can be prematurely withdrawn. However, much would depend on the terms and conditions of the institution where you have opened a fixed deposit account
  6. This option is extremely low risk. It is not impacted by market forces
  7. With the periodic payout option, one can opt for a steady income over a period of time
  8. Bajaj Finance enables you to choose your tenor and enjoy higher interest rates

The drawback of Gold ETFs

Gold Prices are governed by the supply and demand of gold products like jewellery and financial instruments like ETFs. The demand for gold usually increases due to the onset of uncertainty in stock markets. Thus, gold prices are subject to significant spikes in downward economic cycles. However, this makes the gold market prone only to cyclical gains, which happen every few years, and there is no steady increase in prices. Thus, gold and gold-related instruments are heavily dependent on demand and supply. This brings large uncertainty to its returns, making it difficult to predict any returns and cannot be tied to any financial goals.

Financial planners recommend gold to be only 5 to 10% of your entire portfolio. Excessive investment in gold can block your money in a slow investment that does not move, thus wasting that part of your capital.

Gold ETFs Vs. Fixed deposits: A comparative analysis 

Gold ETFs

Fixed deposits

You can invest in electronic form through a Demat account.

You can choose to invest online or offline.

These are open-ended mutual funds from which you can exit anytime without penalties.

You cannot exit without penalty – also called premature withdrawal fees.

The prevailing market price determines the rate.

The interest prevalent at the beginning of the deposit itself is used and stays the same throughout the tenor of the FD.

There is no tenor – you can stay invested for any duration as you find profitable.

FD tenor is chosen by the investor at the time of investment.

The returns are unpredictable and can go up or down on market cues. It is difficult to know what you will earn.

The returns are determined – you know your exact return before you create the deposit.

You can keep adding units of Gold ETFs periodically.

You cannot add “units”, but you can invest in more fixed deposits at regular intervals – also called Laddering.

You can create a SIP to purchase a fixed number of units or invest a fixed amount each month.

You can choose systematic deposit plan and make small monthly investments, starting at just Rs. 5,000.

If you stay invested more than 1 year in gold ETFs, you are eligible for long-term capital gain tax, 20% of the gains in a particular year. 

Unless you invest in tax saving fixed deposits of 5 years with banks, you are only eligible for tax exemption on TDS up to Rs. 40,000 for a regular citizen or Rs. 50,000 for senior citizens. In the case of company fixed deposits, this limit is only up to Rs. 5,000 in a financial year.

All types of investors gain the same percentage returns for a particular duration of time.

Senior citizens receive a higher rate of return for the same duration of a fixed deposit.

How Bajaj Finance FD Outperforms Gold ETF

Currently, Bajaj Finance FD offers an interest rate of 7.75% p.a. for 44 months cumulative fixed deposit. Whereas the returns on gold ETFs for the last five years as per data from leading financial houses have been within the range of 5.37% to 5.51% for the same period. The main reason is the Total Expense Ratio (TER), which is an essential ratio while measuring the performance of mutual funds. These are expenses incurred in administering and executing a fund, like buying and selling gold units in the market and other fees.

On the other hand, Bajaj Finance FD does not levy any fees or expense ratios on the interest earnings. You can know the exact maturity amount in advance using the online FD calculator. Thus, it is easier to plan for your financial goals with high paying fixed deposits like Bajaj Finance FD. Bajaj Finance Fixed Deposits enjoy a [ICRA]AAA(Stable), indicating the highest level of safety and lowest investment risk. BFL FDs have also a rating of CRISIL AAA/ STABLE which is another reason to invest.

You can set your interest payout frequency as monthly, quarterly, half-yearly, or annually with the Fixed Deposit interest Rate Calculator.

Expected Performance of Gold ETF and Fixed Deposits Based on Current Economic Scenario

Gold investments gain traction when global markets are in a tailspin owing to recessionary indications. While the last few years were buoyant and gold investments were at their lowest, the increasing cuts on policy rates worldwide indicate the need to gain traction. The lowering interest rates mean investments across the world are paying lower than earlier. This forces institutional investors to park their money into gold, which can be seen in the increasing prices of international gold in the commodity exchanges.

This has also led to an increase in the prices of gold instruments like gold ETFs. The early investors in gold ETFs will gain higher returns in the future until interest rates stabilize and returns improve.

Fixed Deposits offered by banks will depend on policy rates announced by central banks, hence offering very high-interest rates. However, company fixed deposits will stay higher than bank deposits, irrespective of market dynamics. You can always count on lucrative and stable company FDs like Bajaj Finance FD, which offers interest rates up to 7.50% p.a. on regular FDs and up to 7.75% p.a. for Senior Citizen Fixed Deposits.

Additional Read: How to pick the right NBFC for a fixed deposit

Other Investment Options
Fixed Deposit Mutual Fund Systematic Deposit Plan
Senior citizen savings scheme Retirement Planning Post Office FD
National Pension Scheme Certificates of Deposit Monthly Income Scheme


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