Why FD Investors Should Switch to Stocks

Undoubtedly, fixed deposits or FDs are one of the best investment instruments available to individuals in India. However, sometimes, investors forget that investing in stocks instead of FDs can yield higher returns. By investing in stocks for a longer period, investors can lower the risks and enjoy inflation-beating returns.

In this article, we highlight some of the reasons why investors must shift from FDs to stocks to ensure inflation does not completely erode the returns on their investments.

• Investing in stocks over FDs can have many benefits for an investor.
• Long-term investing in stocks makes you pay far less in taxes compared to FDs.
• To reduce the possibility of risks from stocks, it is advised that you invest in long-term stocks.

Let's examine the top 5 reasons why stock investments provide higher returns to investors than fixed deposits.
 

1. The history

• There is always a 50% chance of stocks rising or falling.
• However, historically, stocks at most can only fall 20% before the market corrects.
• When it comes to the rising, the potential is practically infinite.
• When it comes to investing in stocks for the long haul, the chances of their growth in value are higher.
• This holds especially true if investors focus on high-quality businesses.
• Since its inception, the Indian stock market has helped many investors trade.
• This is despite the many global stock market crashes, stock pullbacks, or even bad performance by many companies.
• Even with the hurdles, the Indian stock market has seen a steady rise.
   

2. Taxation

• Most FDs do not provide tax deductions.
• Long-term investing in stocks makes you pay less in taxes compared to FDs. With FDs, the returns earned are added to your annual income for taxation. If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.
• This is where the income tax slab will be consulted when calculating the returns earned from FDs
• This is different in the case of stocks, where the long-term capital gains (LTCG) tax is 12.5%.
• This is why holding stocks longer saves you money while filing taxes.
   

3. Greater benefits from compounding

• When individuals invest in long-term stocks, they can benefit from the aspect of compounding.
• Compounding can be defined as the provision under which you can reinvest your returns over time to help generate more profits.
• This almost creates a profit-generating chain reaction, as compounding helps generate profits on initial profits.
• However, this will only happen till the time your money remains invested in stocks.
• Compounding FDs also extend the benefit of compounding. However, significant lock-in periods and relatively lower returns compared to stocks push investors to invest in stocks over fixed deposits.
   

4. You can invest aggressively

• Since there is a longer horizon to trade in when you invest in long-term stocks, you can take the chance to be aggressive with your investment strategies.
• As a result, you can look into investing in aggressive stocks like small-cap and mid-cap stocks. This will help you get the highest rate of return on your investment. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.85% p.a.

Investors often panic when they see a fall in stock prices. However, you need to remain calm and avoid selling the stocks just because the market conditions don’t look conducive to the stocks’ growth. What you need to remember is despite these drops or crashes, the market always recovers because of its cyclical nature.

If you sell your stocks at a low price because you are afraid of the market’s volatility, you can lose a significant portion of your investment. This is why it is important to have a little patience when it comes to the stock market.

Investors who typically invest in fixed deposits can shift to investing in stocks to enjoy inflation-beating returns, as you can expect 10-12% returns. However, they must do their due diligence and homework before investing in the stock market.