Indians have always preferred investing in Fixed Deposits (FD), Gold, and Real estate. Various studies suggest that these three investment classes combined have a major chunk of investors as compared to equities, cryptocurrency, and their counterparts. More than 90% of Indian households prefer these investment tools. This is because majorly investors find these avenues easy and safe to understand and invest in. However, when you look at the nuances, the Fixed Deposit comes off as a better investment than gold. To understand this better, let us look at how investing in an FD and gold work separately.
Investing in a Fixed Deposit
Fixed Deposits are offered by banks, Non-Banking Financial Companies, and the post office. Each has its features and benefits; it falls on you as the investor to pick one that best suits your needs. For maximum returns, the best instrument is one that has the highest interest rate as this directly translates to returns. Here, company FDs may be your best option as they have high FD rates, usually surpassing the competition. NBFC FD like Bajaj Finance offers the dual advantage of safety along with high FD interest rates making it a great investment option. Along with this comes a suite of other benefits like loan against FD facility, online investment process, etc. The earlier you get started, the better are your returns as you stay invested for longer and enjoy the benefit of compounding interest.
Key benefits of FD –
Here are some key benefits of investing in FD:
- Fixed returns: The interest rate on FDs is fixed at the time of investment, so investors can be assured of receiving a fixed return on their investment.
- Safety: FDs are considered a low-risk investment option as they are backed by the creditworthiness of the bank or NBFC issuing the FD.
- Flexibility: Investors can choose the tenure of their FDs, ranging from a few months to several years. This will depend on your investment horizon and financial goals.
- Liquidity: FDs can be easily encashed before the maturity date, although there may be a penalty for premature withdrawal.
- Diversification: FDs can be an effective way to diversify an investment portfolio as they offer an opportunity to earn a steady stream of income while minimising risk.
- Loan against FD: Look no farther than your fixed deposit if you need a loan to cover an unexpected need. One of the main benefits of a fixed deposit account is the loan/ overdraft feature. By putting up the term deposit as security, you can obtain a loan.
Investing in an FD is very simple you can either do it offline by visiting your nearest branch and submitting necessary document, or book an online FD from the comfort of your home. Investing online is extremely easy. With the right financier like Bajaj Finance, you can do it in under 10 minutes. Visit the website, fill in essential details like initial deposit amount, tenure, complete KYC, and link account. Post that the money will be deducted and your account will be created. You can track all of this from just your phone anytime.
The only thing that you need to take care of while investing in an FD are the interest rate and safety ratings. A higher interest rate might look lucrative. However, if the ratings accredited by CRISIL and ICRA (the top-most credit rating agencies in India) are poor then you might be at risk of default and untimely payments. 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.
Investing in Gold
Investing in gold is much simpler you can visit your nearby jeweller and purchase gold. Many companies sell it online as well. But, this market is extremely unorganised. This makes it very risky to invest in gold. With the current ongoing rate of about 51,000 per 10-gram, gold is not only very expensive but knowing if the coin or biscuit you purchase is pure, is a struggle. In India, the jewellery sector is highly unorganised making it difficult to trust the quality of the gold you purchase and sell. This could lead to losses. Also, the rate keeps fluctuating which makes it a dynamic investment. It is a reliable option for the long term but is very volatile in the short term.
FD v/s Gold
Here are some points that can help you compare the investment in FDs and gold:
- Risk: FDs are generally considered to be a low-risk investment option as they offer profitable return on your investment. Gold prices, on the other hand, are more volatile and can fluctuate significantly based on various factors.
- Return on investment: The return on investment for FDs is fixed and known in advance, while the return on gold can vary significantly.
- Liquidity: FDs are relatively liquid, as you can withdraw your money before the maturity date (although you may have to pay a penalty for early withdrawal). Gold is considered to be a relatively illiquid investment, as it can be difficult to sell quickly or at a fair price.
- Taxation: Interest earned on FDs is taxable as per the applicable tax slab. While the sale of gold is generally taxed at a flat rate of 20% (plus surcharge and cess) if the holding period is less than three years. If the holding period is more than three years, the sale of gold is taxed at a flat rate of 10% (plus surcharge and cess).
- Storage: FDs are generally held in a bank account, while gold may need to be stored in a safe or a secure location.
- Diversification: FDs can be a good option for diversifying your investment portfolio as they offer a relatively stable return. Gold can also be a good option for diversification, but it is generally considered to be a more speculative investment.
Ultimately, the choice between FDs and gold will depend on your financial goals, risk tolerance, and other personal factors. It is generally a good idea to diversify your investments across different asset classes to manage risk and maximise returns. It is also important to consider factors such as taxes, fees, and charges associated with different investment options. It is always a good idea to seek the advice of a financial adviser or professional before making any investment decisions.
Calculate FD returns through our FD calculator.