Fixed Deposit (FD) vs Stock Market
Last Updated : Jan. 4, 2022, 5:38 p.m.
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Investing is something that everyone should undertake at some point in their lives. Investing is one such thing that will get you there if you want to build wealth and financial stability. If you do not invest your money, you would eventually end up losing your money due to inflation. However, if you start investing your money you can stay ahead of inflation. Moreover, saving money involves putting money aside to use for future expenses. In other words, unlike spending all of your money you put some into a savings bank account. Fixed Deposit (FD) vs Stock Market is a common debate topic as these two are the most common investment tools to begin your investment journey with.
Savings is the first step in investing because it provides you the funds to purchase different assets. However, once you have made your savings, you will need some options to invest your money. A FD and stock market are common tools for investment that help you grow your savings. However, both these investments have their own set of advantages. Choosing the right investment option is based on your risk tolerance, investment goals as well as the amount that you are willing to invest. On one hand, where stocks are market-linked and can offer returns that would beat inflation, there is also a risk of losing your capital. Similarly, on the other hand, a fixed deposit is an instrument that guarantees returns over well before agreeable tenure.
Best Investment Options for Beginners
People have a common misconception that investing is only for the rich people who have surplus funds to invest. However, in today’s world, there is no barrier to entering into the world of making investments. There are various investment schemes available for everyone, including beginners who have small funds to invest. Moreover, investing in a Fixed Deposit and the stock market are the two options to start investing.
| BASIS OF DIFFERENTIATION | FIXED DEPOSIT | STOCK MARKET |
|---|---|---|
| Returns | Fixed Returns | No Fixed Returns: Can be high or low |
| Investment Tenure | Pre-decided Investment Tenure | No Fixed Investment tenure |
| Risk Involved | Low Risk Involved | High Risk Involved |
| Types of Investment | Short, medium, or long terms FDs | Indian shares along with global shares and cryptocurrencies |
| Periodic Returns | Monthly, Quarterly, Half Yearly, or Annually | You can sell shares at your own discretion |
| Stability | High Stability | Low Stability |
Each investment tool comes with its own set of benefits, which are as follows:
Benefits of Investing in a Fixed Deposit
There are a number of benefits to investing in a fixed deposit. Especially if you are a beginner in investing then it is the safest form of investment that you can start investing with. Fixed deposits are low-risk investments as they have no impact by market fluctuations. Therefore, it makes it easy for your money to grow at a constant rate. Moreover, they are offered at a pre-decided rate of interest which enables you to get a fixed sum at the end of your investment tenure. However, you always have the option of receiving your income either at maturity or on a periodic basis like monthly, quarterly, half-yearly, and annually. The major reason why investing in fixed deposits is favourable is due to their high stability.
Bank Fixed Deposits have a fixed tenure, which can range anywhere between 7 days to 10 years depending on the term of fixed deposit (Short, medium, or long term). Although Fixed deposit or FD has a fixed tenure, you always have the option of premature withdrawal. In case of an emergency, you can break your FD or take a loan against your fixed deposit. However, you might lose a portion of your interest income if you opt for premature withdrawal. Therefore, always keep in mind that any interest above INR 10,000 shall be subject to tax. The major benefits of investing in Fixed Deposit are as follows:
- High Stability & Low Risk
- Investment Tenure is Fixed
- Premature Withdrawal
- Periodic returns
Benefits of Investing in Stock Market
When compared to Fixed Deposits , the stock market is comparatively volatile but also has certain benefits. Benefits like no limit on the returns that you can make by investing in the stock market. However, it is always advisable to invest in smaller amounts as the market is entirely dependent on the market forces which could lead to the loss of your investment. Apart from investing in the Indian share market, you can also invest in various global currencies such as the cryptocurrency market. Before you start investing make sure that you have adequate knowledge about the market. However, even if you have the in-depth knowledge about the share market and are willing to take risks, you might still not be able to generate returns. Therefore, if you are a beginner you should start by making small investments. The benefits of investing in the stock market are as follows:
- Protection against Inflation
- No limit on the Returns
- Access to the Global Markets
- No Fixed Tenure
Which One Should You Choose?
Amid the current COVID situation and changing market conditions, it can be challenging to choose an investing tool that would offer high returns with guaranteed safety. However, the decision is based upon factors like your risk appetite, the safety of your investments along the amount that you are willing to invest. Fixed Deposit is a type of investment tool where returns are guaranteed. When you invest in a Fixed Deposit, your principal and interest will be given to you at the end of your investment tenure. But, when you invest in the stock market there is no guarantee as they are directly linked to market fluctuations.
So, if you are looking for stable returns on your investment then, you should always invest in a Bank Fixed Deposit rather than the stock market.