Where To Invest Money? - Equity Market or Fixed Deposits!
An average income earning Indian usually prefers bank fixed deposits as an investment option due to the fixed return and safety cushion it comes with. The security of parking money in a bank is apparently a great factor. But people should think if they are actually saving money or losing it by investing FDs. Let us analyze how equity investments or fixed deposits may make a difference when it comes to actual returns.
Equity Investment Amount vs Fixed Deposit Amount -
When investing in FDs, investors are allowed to invest a specific sum of money for a fixed period of time at a pre-determined interest rate. But in case of equity investment, a person can invest any amount if needed.
Returns -
FD usually offers returns of about 8%-9% which is pretty less than other options of investment. Whereas, equity investments yield an average return of 12%.
Tax Implication -
Interest earned from fixed deposit investments is taxable. However, interest from investments in equity mutual funds are tax-free.
Liquidity -
When invest in equity, a person can withdraw his/her money according to the need. But premature withdrawal from FDs will cost reduction in interest rates, apart from incurring pre-closure charges.
Control Over Investments To Some Extent -
In equity, investors can identify suitable rules and strategies to maximise their profit. But in case of FDs, investors do not have control over their investments.
Effect Of Inflation -
Even as it looks risk-free, inflation can eat up your returns through fixed deposit. Therefore, the actual return could be zero or negative. In case of equities, investors are free to buy during low times and sell during during high times.
Conclusion - From the above analysis, it is justified that investment in equity market can give better returns than a bank FDs. Though FDs are hailed for their low risk category, one can earn higher profit if played well, in stock market.
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5paisa Research Team
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.