Is FD a better investment option than equity

Unlocking the Investment Dilemma: Comparing FDs and Equity – Which Path Leads to Better Returns?
FD vs Equity
4 mins
05 April 2024

Whether FD or equity is the better investment option depends on individual financial goals, risk tolerance, and investment horizon. Fixed deposits (FDs) offer safety, stable returns, and are ideal for conservative investors seeking capital preservation. On the other hand, equities can potentially deliver higher returns over the long term, making them suitable for those willing to accept market fluctuations. Diversifying a portfolio with both FDs and equity can provide a balanced approach, combining safety and growth potential. Ultimately, the choice should align with your financial objectives, time horizon, and comfort level with risk.

  • Risk appetite
  • Financial goals
  • Age
  • Income
  • Expenses
  • Liquidity requirement

Financial experts suggest looking into all these options and then going for a plan. When looking at Fixed Deposits and equity shares, two completely different investment classes, it is important to understand that no one option is the best. However, a healthy ratio of investments in both tools can be beneficial. Usually, experts suggest investors maintain a well-diversified portfolio. It stems from the simple idea of not putting all your eggs in one basket. A balanced mix of various asset classes makes for an ideal portfolio.
Let’s try and understand both investment tools.

Fixed Deposits (FD)

The fixed deposit is a fixed-income instrument not affected by volatile market movements. The interest rate applicable when booking an FD is maintained throughout the chosen tenor. It makes it easy to estimate the returns at maturity. A perfect tool to invest in if you have certain financial goals to fulfil in a stipulated time frame. It is one of the safest investment options available to date. Here the investor need not worry about losing the capital at all. However, this low-risk avenue does not offer very lucrative returns compared to its market-linked counterparts.

Banks, Post-offices, and Non-banking financial companies (NBFCs) offer fixed deposit facilities. Since Banks and post office FDs are backed by the central government they are extremely risk-free. The NBFCs also called the company FDs, are safe provided you go through the credit ratings provided by the leading rating agencies in India. Companies like Bajaj Finance FD offer the dual advantage of higher FD rates and deposit safety.

Few key highlights of the FD plan offered by Bajaj Finance

  • Low minimum investment amount
  • Flexible tenures
  • Flexible payout option
  • Online account management and booking facility
  • Loan against FD facility
  • High-interest rates
  • Additional interest rates for senior citizens

Here’s a look at the interest rates offered to investors below 60 years of age.
*Special interest rates are offered on tenure of 18, 22, 33, 42 and 44 months.

Equity Shares

This investment class is purely market movement based and is very dynamic being a high-risk high-reward nature of functioning. Here an investor parks his money in company-owned stocks i.e. he opts for fractional ownership in a company. In this case, if the company does well the stock does well and the investor can earn handsome returns surpassing those of fixed income instruments like the FD. However, if the company faces losses the stocks plummet, eroding your investment and it can even eat into your initial capital investment. Hence, doing your due diligence is extremely important while investing in this asset class.

In conclusion, it is unfair to state that one investment is better than the other. It is a financial choice that can be, made wisely by factoring in the parameters mentioned above and can be different for different investors. However, the bottom line is that having a diversified portfolio of investments in different investment classes is extremely important. It offsets risks and ensures optimal returns overall.

FD Max rates for customers below the age of 60

Bajaj Finance FD Max annualised rate of interest for customers below the age of 60 is valid for deposit up to Rs. 25,000 (w.e.f 14 November, 2024)

*Experience higher interest rate of up to 8.60% p.a. on a 42-month Digital FD Max, available on website and app.

Bajaj Finance Digital FD Max

New Product Launch
Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
42* 8.60% 8.28% 8.34% 8.42% 8.60%

Special Period (FD MAX)

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
18* 8.00% 7.72% 7.77% 7.85% 8.00%
22* 8.10% 7.81% 7.87% 7.94% 8.10%
33* 8.30% 8.00% 8.05% 8.13% 8.30%
44* 8.45% 8.14% 8.20% 8.28% 8.45%

Regular Period (FD MAX)

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
12 - 14 7.60% 7.35% 7.39% 7.46% 7.60%
15 - 23 7.70% 7.44% 7.49% 7.56% 7.70%
24 - 35 8.00% 7.72% 7.77% 7.85% 8.00%
36 - 60 8.30% 8.00% 8.05% 8.13% 8.30%

FD rates for customers below the age of 60

Fixed Deposit annualised rate of interest for customers below the age of 60 is valid for deposit Rs. 25,001 and up to Rs. 3 crore (w.e.f 14 November, 2024)

*Experience higher interest rate of up to 8.40% p.a. on a 42-month Digital FD, available exclusively on website and app.

Bajaj Finance Digital FD

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
42* 8.40% 8.09% 8.15% 8.23% 8.40%

Customers below the age of 60 – Special Period

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
18* 7.80% 7.53% 7.58% 7.65% 7.80%
22* 7.90% 7.63% 7.68% 7.75% 7.90%
33* 8.10% 7.81% 7.87% 7.94% 8.10%
44* 8.25% 7.95% 8.01% 8.09% 8.25%

Customers below the age of 60 – Regular Period

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
12 - 14 7.40% 7.16% 7.20% 7.27% 7.40%
15 - 23 7.50% 7.25% 7.30% 7.36% 7.50%
24 - 35 7.80% 7.53% 7.58% 7.65% 7.80%
36 - 60 8.10% 7.81% 7.87% 7.94% 8.10%

FD Max rates for customers above the age of 60

Bajaj Finance FD Max annualised rate of interest for senior citizens for deposit up to Rs. 25,000 (w.e.f 14 November, 2024)

*Experience higher interest rate of up to 8.85% p.a. on a 42-month Digital FD Max, available on website and app.

Bajaj Finance Digital FD Max

New Product Launch
Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
42* 8.85% 8.51% 8.57% 8.66% 8.85%

Senior Citizen – Special Period (FD Max)

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
18* 8.25% 7.95% 8.01% 8.09% 8.25%
22* 8.35% 8.05% 8.10% 8.18% 8.35%
33* 8.55% 8.23% 8.29% 8.37% 8.55%
44* 8.70% 8.37% 8.43% 8.52% 8.70%

Senior Citizen – Regular Period (FD Max)

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
12 - 14 7.85% 7.58% 7.63% 7.70% 7.85%
15 - 23 7.95% 7.67% 7.72% 7.80% 7.95%
24 - 35 8.40% 8.09% 8.15% 8.23% 8.40%
36 - 60 8.55% 8.23% 8.29% 8.37% 8.55%

FD rates for customers above the age of 60

Fixed Deposit annualised rate of interest for senior citizen is valid for deposit Rs. 25,001 and up to Rs. 3 crore (w.e.f 14 November, 2024)

*Experience higher interest rate of up to 8.65% p.a. on a 42-month Digital FD, available exclusively on website and app.

Bajaj Finance Digital FD

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
42* 8.65% 8.51% 8.57% 8.66% 8.65%

Senior Citizen – Special Period

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
18* 8.05% 7.77% 7.82% 7.89% 8.05%
22* 8.15% 7.86% 7.91% 7.99% 8.15%
33* 8.35% 8.05% 8.10% 8.18% 8.35%
44* 8.50% 8.19% 8.24% 8.33% 8.50%

FD Interest Rate for Senior Citizens

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
12 - 14 7.65% 7.39% 7.44% 7.51% 7.65%
15 - 23 7.75% 7.49% 7.53% 7.61% 7.75%
24 - 35 8.20% 7.91% 7.96% 8.04% 8.20%
36 - 60 8.35% 8.05% 8.10% 8.18% 8.35%

Equity Investment Amount vs Fixed Deposit Amount

Investors in fixed deposits (FDs) commit a specific amount for a predetermined period at a fixed interest rate. In contrast, equity investments allow flexible investment amounts.

  • Returns:
    FDs typically offer returns ranging between 5%-9%, which are relatively lower than other investment options. On the other hand, equity investments have the potential to produce a higher yield over time.
  • Liquidity:
    In equity investments, individuals can withdraw their funds as needed. However, premature FD withdrawals can lead to pre-closure charges.
  • Control Over Investments:
    Equity investors can employ various strategies to maximise profits, but FD investors have limited control over their investments.
  • Effect of Inflation:
    While FDs may seem risk-free, inflation can erode returns, potentially resulting in zero or negative real returns. In contrast, equity investors can time their purchases and sales to navigate market fluctuations effectively.

Frequently asked questions

Is investment in equity is safer than bank fixed deposit?

Investment in equity is generally considered riskier than a bank fixed deposit, as the stock market can experience fluctuations that may lead to losses.

What is the difference between FD and equity fund?

The key difference between FD and an equity fund lies in their nature: FD is a fixed-income, low-risk instrument, while equity funds invest in stocks, offering potentially higher returns but with higher risk.

What is better than FD funds?

Several investment options, like mutual funds, can potentially offer better returns than traditional FDs, depending on an individual's risk tolerance and financial goals.

Why is FD better than stocks?

FDs are often favored over stocks by risk-averse investors due to their stability and guaranteed returns, while stocks carry higher market volatility and uncertainty.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.