Is FD a better investment option than equity

Fixed deposits (FD) and Recurring deposits (RD) are favourable investment tools financial institutions offer. It is because both the instruments are safe, fixed income and low-risk.
4 mins
14 Oct 2022

Knowing where to put your money can be daunting with a wide range of investment tools available in the market. However, this can be simplified by filtering options based on a few parameters like

  • 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 which are 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 prove to be beneficial. Usually, experts suggest investors to maintain a well diversified portfolio. It stems from the simple idea of not putting all your eggs in one basket. A balanced mix of a variety of 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 that does not get affected by volatile market movements. The interest rate applicable at the time of booking an FD is maintained throughout the chosen tenor. This 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 when compared to its market-linked counterparts.

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

Few key highlights of the FD plan offered by Bajaj Finance:

  • Low minimum investment amount
  • Flexible tenors
  • Periodic payout option
  • Online account management and booking facility
  • Loan against FD facility
  • High-interest rates
  • Higher 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 15, 18, 22, 30, 33, 39 and 44 months.

 

Cumulative (interest +principal amount paid at maturity)

Non-cumulative (interest paid at a defined frequency, principal paid at maturity)

Tenure in months

At Maturity

(p.a.)

Monthly

(p.a.)

Quarterly

(p.a.)

Half Yearly

(p.a.)

Annual

( p.a.)

12 - 14

6.80%

6.60%

6.63%

6.69%

6.80%

15*

6.95%

6.74%

6.78%

6.83%

6.95%

16-17

6.80%

6.60%

6.63%

6.69%

6.80%

18*

7.00%

6.79%

6.82%

6.88%

7.00%

19-21

6.80%

6.60%

6.63%

6.69%

6.80%

22*

7.10%

6.88%

6.92%

6.98%

7.10%

23

6.80%

6.60%

6.63%

6.69%

6.80%

24-29

7.25%

7.02%

7.06%

7.12%

7.25%

30*

7.30%

7.07%

7.11%

7.17%

7.30%

31-32

7.25%

7.02%

7.06%

7.12%

7.25%

33*

7.30%

7.07%

7.11%

7.17%

7.30%

44 - 35

7.25%

7.02%

7.06%

7.12%

7.25%

36 - 38

7.50%

7.25%

7.30%

7.36%

7.50%

39*

7.60%

7.35%

7.39%

7.46%

7.60%

40-43

7.50%

7.25%

7.30%

7.36%

7.50%

44*

7.70%

7.44%

7.49%

7.56%

7.70%

45-60

7.50%

7.25%

7.30%

7.36%

7.50%


Senior citizens get additional rate benefits of up to 0.25% p.a. on their deposits.

Here’s a table of the latest interest rates senior citizens can get on their deposits.
*Special interest rates are offered on tenure of 15, 18, 22, 30, 33 and 44 months.

 

Cumulative (interest +principal amount paid at maturity)

Non-cumulative (interest pay-out at regular frequency, principal amount paid at maturity)

Tenor in months

At Maturity

Monthly

Quarterly

Half Yearly

Annual

12-14

7.05%

6.83%

6.87%

6.93%

7.05%

15*

7.20%

6.97%

7.01%

7.08%

7.20%

16-17

7.05%

6.83%

6.87%

6.93%

7.05%

18*

7.25%

7.02%

7.06%

7.12%

7.25%

19-21

7.05%

6.83%

6.87%

6.93%

7.05%

22*

7.35%

7.11%

7.16%

7.22%

7.35%

23-24

7.05%

6.83%

6.87%

6.93%

7.05%

24-29

7.50%

7.25%

7.30%

7.36%

7.50%

30*

7.55%

7.30%

7.35%

7.41%

7.55%

31-32

7.50%

7.25%

7.30%

7.36%

7.50%

33*

7.55%

7.30%

7.35%

7.41%

7.55%

34-35

7.50%

7.25%

7.30%

7.36%

7.50%

36-60

7.75%

7.49%

7.53%

7.61%

7.75%

44*

7.95%

7.67%

7.72%

7.80%

7.95%

45-60

7.75%

7.49%

7.53%

7.61%

7.75%

 

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 capital initial 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. This 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. This offsets risks and ensures optimal returns overall.