“Savings” and “investments” are commonly used interchangeably. However, they differ. Choosing a suitable investment might be difficult, but playing it safe won’t make you much money. FD interest rate historically averages 5.35%. Stocks have a growth rate of 10%. This statistic is one of the many advantages of buying stocks over fixed deposits.
It is correct to say that stock prices are very unpredictable. But if you turn on the television, you’ll see at least six reasons to be frightened, hide, be cautious, and hold out hope. In our increasingly fearful and careful culture, many people are doing that.
When fear is most widespread, people who can separate their anxieties into those that are helpful for them from those that are not will be better able to oversee their difficulties, adapt to change more quickly, and seize opportunities that others are burying their heads in the sand won’t.
Imagine where you’ll be in ten years. It’s challenging. People like you will have accomplished tremendous things in ten years. We don’t know who they will be, but they won’t give in to the worries that have led many others to compromise, play it safe, find an explanation, and put things off.
They will be risk-takers aware that more important things are at stake. Neuroscientists have shown that people overestimate risks and underrate our ability to control them using brain imaging technologies. So, rather than being devoted to what we desire, we are more motivated by our fear of what we don’t want.
With inflation at a 40-year high and the risk of inflation, many individuals prioritize budgeting and saving. An FD is something to consider if you’re looking for a place to preserve assets for a certain period and value peace of mind.
Invest in equities if you can tolerate the risk. Here are several advantages of buying stocks over fixed deposits:
- Investment Returns
These investments may effectively guarantee returns if you put your money in classic FDs for the whole period.
For instance, a one-year fixed-income investment may yield 1% annually if you hold it for a year, and a five-year FD may generate 2% annually if you keep it for the whole five-year period. (Remember that these are fictitious instances.)
Since its establishment, the BSE Sensex, India’s oldest and most well-known stock market index, has generated 17–18% annual returns, according to the top traders in India. An investment that earns 18% annually doubles in value after four years.
It is a widespread practice to consider fixed deposits lower-risk investments than equities. That’s because standard FDs often don’t allow you to lose your original investment. If you withdraw your money too soon, you could be penalized, although often the punishment is the interest you lost.
Equities, in comparison, provide exceptional long-term returns, but their short-term volatility, particularly for novice investors, may be alarming. Fortunately, there are many ways for investors to lower the risk associated with their stock investments.
Banks typically don’t charge up-front costs for FDs, but you can incur fees if you withdraw your money before the FD expires. Although such fees sometimes affect the interest, you would have otherwise received rather than your capital. They are nonetheless a cost to consider.
On the other side, investing in stocks may incur various costs, such as brokerage fees for each transaction. Nevertheless, commission-free and fee-free transactions are available on specific platforms, such as at the best stock broker in India, and stock trading costs have lately decreased.
The interest gained on FD accounts is completely taxable under Indian law. You must calculate your total income before applying the interest from your fixed deposits to your tax liability. The Income Tax Act’s suitable tax slab decides the tax rates for your taxable income.
According to Section 111A of the Income Tax Act of 1961 (referred to as the “IT Act”), short-term capital gains on equities are subject to a 15% tax.
Long-term capital gains are not subject to taxation up to the threshold value of 1,00,000 Indian Rupees. Additionally, you may postpone paying taxes on gains since stock earnings don’t result in capital gains until you sell them.
Several firms regularly distribute stock dividends. It is a fantastic method to make more money. The fact that it is tax-free is the most excellent part. Additionally, companies that distribute dividends regularly often fare better.
FDs are less liquid than stocks since you risk paying fines and losing income if you withdraw your principal early from an FD. The process is straightforward if you withdraw your money earlier than expected.
Alternatively, equity trading on an open market usually generates high liquidity. You may often buy or sell stock practically instantaneously while opening exchanges (typically during the week).
If you are considering investing money, you should consider this issue. Most of the time, this phenomenon has a negligible impact on how inflation affects wealth accumulation.
Due to this, your money must be buying power increase at a pace higher than the inflation rate, which is not always the case in FDs.
When a stock’s price is at an all-time low, it is the best time to buy it. The choice to sell it is one you make when the cost rises. Equities are a great investment choice for dramatically outpacing inflation owing to the tremendous gains they provide.
The Final Word
Stocks may be beneficial additions to a diverse portfolio, whether trying to enhance your wealth, savings, or passive income.
While stocks and FDs provide benefits, the best option for you depends on your circumstances, risk tolerance, and investment goals.
Investing in varied stocks for the long term might be a simple start if you decide that stocks are a better match for your circumstances. Additionally, if you choose a fixed deposit, check around for the best rates since they may and do differ across banks.