Where To Invest Money? - Equity Market or Fixed Deposits!

Divya Nair

22 Nov 2016

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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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Where To Invest Money? - Equity Market or Fixed Deposits!

Divya Nair

22 Nov 2016

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.