Investment is very important. Got placed, let us invest. Where to invest? How to invest? Well… Dad told me to go for Fixed Deposit “shouldn’t take the risk at all”.
In dilemma? Don’t know what to do, don’t want money to get devalued.
To reduce this confusion for newbies, there are many options of investments with some pros and cons respectively.
Stocks vs Fixed deposits
Fixed deposits and stocks are two main recourses for investment. Let’s talk about these ones by one.
Fixed deposits are offered by Banks and NBFCs, here people can deposit money for a specific period and earn higher interest than a savings account.
It takes a long time to see your money grow, tenure varies from 7 days to 10 years. It is the safest way of growing the savings. Whereas, Stock market is a place where traders (buyers and sellers) exchanges shares, stocks, bonds, etc. Investors buy a stock from a company and keep it to earn profit or maybe even sell it, if getting a good deal on that stock. The average return on stocks range between 10% – 20%.
Why choose the stock market over Fixed Deposits?
You can always, without any second thought plump for the Stock market over Fixed deposits as stocks provide better return than Fixed Deposits. Moreover, the money invested can be withdrawn anytime and no lock-in period is there in the stocks.
Fixed deposit refers to depositing money in a bank. Banks give interest up to 6% – 7.5%, earlier the interest rate was 8% – 9%, but as the economy develops interest, rates decrease. For instance, in Japan, interest rate on fixed deposits is 0%. There is no risk, your money will neither decrease nor increase.
How and why Stock Market ?
Because Fixed Deposits are value destructive, if we look at the return on Fixed Deposits after adjusting inflation, then a lot of time, it comes out to be negative. Meaning, in fixed deposit if you are getting 5%, 1000 rupees at the end of the year will be 1050 rupees. But the inflation is also 5%, therefore, earlier what costs 1000 rupees will cost 1050 rupees after one year. The money increased but the inflation increased too, so practically it’s the same.
Fixed Deposits do not help you to grow your money rather, they just help you to protect it.
It provides liquidity but the interest rates decrease if taken before time and on top of it, Fixed Deposits are taxable. If you need the money shortly and can’t risk the principal for the promise of short-term gain, then a Fixed Deposit is a good option.
Stock market returns almost double of what Fixed Deposits do, as the interest rate of stocks lies between 12% – 15% on an average. Risk is a bit high here, but it comes with high liquidity as well. If you have long-term goals and if you intend to grow your wealth, then stocks are a better option than Fixed Deposit.
Now comes a question, that why are people scared of the Share Market?
Well, it anticipates easy access. People contemplate that it’s risky because they have heard about experiences of those who invest huge amounts without thinking and that too for a short period. You must invest for the long term to earn huge interest in the amount being invested. Another most important thing about stocks is that you should never sell indices in case of slit profits or losses being shown.
You should also work on basics and not be greedy, I repeat do not be greedy, as greed might make you bear losses in long run. The stock market in comparison to Fixed Deposit is highly rewarding. You must maintain balance while investing, for instance, if you want to invest 1 lakh rupees then invest 50,000 rupees in Fixed deposit and another 50,000 in stocks.
Therefore, people who are in their 20s can invest in the share market if they are intended to grow their money and earn capital. Whereas people in their late 30s can invest in Fixed Deposits if they want to protect their money and don’t want to grow capital.