Introduction
When it comes to saving money, Fixed Deposits (FDs) are one of the most popular choices, as they offer a secure way to invest money without risking the capital amount and getting guaranteed interest income. However, FDs are just one among a long list of investment options available for investors. In this article, we’ll compare fixed deposits with other popular investment avenues.
What are fixed deposits?
Fixed deposits are an investment avenue where you deposit a set amount of funds with a bank for a specific period of time. In return, you earn a fixed amount of interest on your invested amount, which the banks pay during the time of the FD maturity or at periodic intervals (monthly, quarterly, annually, etc).
The key advantage offered by fixed deposits is the fact that they keep your capital completely secure, and the returns are predetermined and guaranteed. However, prematurely withdrawing funds from your FD can result in reduced interest payments as a penalty.
Fixed deposits vs savings accounts
While fixed deposits require individuals to deposit money for a fixed tenure, there is no such restriction on savings accounts. Individuals can deposit and withdraw their funds at any time from their savings accounts. However, the interest rates offered on savings accounts are generally lower than fixed deposits, and many savings accounts also have minimum balance requirements. To compare and understand how FDs stack up against savings accounts, you can use an FD calculator and compare the different returns based on the interest offered.
If you wish to invest your saved funds in a fixed deposit to earn higher returns, consider investing in the instant FDs offered by IndusInd Bank. Some of the key features of IndusInd Bank Fixed Deposits include:
- Open your FDinstantly through the digital KYC process
- Choose from a variety of tenures for your FD
- Earn best-in-class interest rates
- Get features like auto-renewal and multiple interest payout options
Fixed Deposits vs Public Provident Fund (PPF)
PPF is a government-backed savings/investment scheme that generally offers higher interest rates than fixed deposits and the interest income is not taxable. However, PPF locks up your funds for a period of 15 years, in contrast to the flexible tenures available with fixed deposits.
Fixed deposits vs mutual funds
A mutual fund pools money collected from a large number of people and invests it across several securities, such as stocks and bonds, depending on the type of mutual fund. This is to diversify and protect against risk. Mutual funds are managed by Asset Management Companies (AMCs) and the investment decisions are made by expert fund managers.
On average, equity mutual funds can potentially offer higher returns compared to FDs, especially in the long run. However, there is an inherent risk in investing in mutual funds as it can also lead to negative returns due to market fluctuations, unlike FDs where capital is secure and returns are guaranteed.
Fixed deposits vs stocks
Investing directly into promising stocks offers the potential for high returns, even more than mutual funds. However, the risks associated with investing in stocks are quite significant. Without proper diversification and a strategy in place, investors can lose large amounts of money in the stock market, unlike FDs where investors do not have to worry about losing their capital or how much returns they’ll get.
Fixed deposits vs real estate
Real estate is also another popular form of investment that is popular. Apart from the appreciation of the property value, the owners can also earn returns by renting out properties. However, the initial investment required for real estate is quite substantial when compared to FDs, and it can be quite difficult to liquidate real estate assets compared to the ease of breaking an FD.
To conclude
Compared to other investment options, fixed deposits offer a straightforward and secure way to earn a return on your investments. Although stocks and mutual funds may offer higher returns, they can also lead to losses and your capital amount getting depleted. Moreover, FDs are more liquid than options like PPF and real estate and offer better interest rates than savings accounts, making them an ideal choice for risk averse investors. However, a balanced investment strategy should contain a mix of investments, including FDs and other options like mutual funds and stocks.