You have money to invest, looking for opportunities to grow your wealth but, are confused between the share market and FD. Where to invest money.
When it comes to money, everybody looks to increase it in a sustainable and secure way. If we talk about the FD or fixed deposits, it is the oldest model to keep your funds secure where you earn interest.
For a long time, it was the only option for people. After that, the stocks came into place. People now can invest their money in various stocks and as the stock prices go, so does their wealth. But, there are lots of things to consider when you choose one of the options.
In this article, we will go through the pros and cons of both options so that you can decide where you should put your money. As the FD has been a great option to save your money for a while, let’s discuss it first.
What is FD?
FD or fixed deposit is a scheme where you put your money on a regular or one-time basis and in the term you earn a commission for that.
Most people keep their liquid cash in banks so most people prefer to fix an amount.
You can opt into a fixed deposit by choosing a monthly recurring option, quarterly, or one-time option. The amount of interest you earn depends on which scheme you have chosen, the duration, the bank or financial organization you have chosen, and more.
But above all, one factor is mainly important, and that is tenure.
There are various types of fixed deposits such as Tax saving fixed deposits, FD for senior citizens, and many more.
Older people choose the FD for senior citizens, which gives higher interest rates compared to regular ones.
Another popular type of fixed deposit is the tax-saving FD.
When you earn a commission, taxes are applied to your interest. Depending on the amount of interest, taxes are applicable. But, not if you choose the tax-saving fixed deposit. If you embrace this type of FD, you get discounts on your earnings from the interest.
As the name suggests, no matter what happens, you will earn a fixed interest.
Benefits of fixed deposits:
There are many benefits of fixed deposits. They are mentioned below,
Zero risks:
If you are looking for a way to increase your money with zero risk of fund losses, then probably there is no other better option than the FD. After the period is over and your fund is eligible for unlocking, you get the exact amount you have invested at the time of opening and not to mention the earnings.
Guaranteed returns:
With fixed deposits, there is a guaranteed return at the returns. When you put money in the form of FD or RD, banks invest this money in various sectors. The lion’s share is invested in share markets. But, no matter what the market conditions are, you earn a guaranteed commission on your FD.
Tax-saving options:
There are many tax-saving fixed deposits available that you can choose from. On maturity, you don’t have to give any taxes on that anyway.
These are some benefits of putting your fund into fixed deposits.
However, let’s talk about stocks.
What is the stock market?
If we explain the share market in a simple manner, it is basically a platform where you can buy or sell shares of companies that park their shares. Listing the IPO on the share market is a primary way to gain funds from the market in a systematic way. Companies that enlist their shares on stock exchanges pass many criteria so that investors do not lose their money unlawfully.
On the side, where companies get money from people who buy their shares, and on the flip side, there is a great opportunity for investors who want to grow their money really quickly.
The stock market has become a very trendy option for people who want to increase their wealth quickly.
Every company lists its shares at a specific price and interested people buy stocks at that price. The Good and bad things about the stocks are if the company makes a profit and if it goes down, so would be with the share prices.
Now, as an investor, if your stocks are rising high, you are also making money for that and if they are losing their value, your investment will also go down.
Types of investment in the share market:
There are basically two types of investments in stocks,
Short time and long time.
Short-time investments:
If you wish to invest your money into stocks, you can choose a range as low as one day. That is called intraday trading. Here investors buy and sell their shares on the same day.
Long-time investments:
If you want to minimize your risks in trading, you may want to invest for the long term.
Now, let’s talk about,
Advantages of investing in stocks:
Excellent returns:
When you invest your money in stocks, there is no maximum bar to reach. Your investments can be very high. There are many instances where people have invested in stocks and gained huge profits overnight. But, and a big but, you need to invest your money in the place. Otherwise, you may face losses too.
You can withdraw your money anytime:
Another great benefit of stocks is, you can cash out your income whenever you want. Typically investors buy shares of companies at a low price and when the price gets higher, they sell those and earn profits. But, there are no time caps. If you want to sell the shares, you can do so straight away.
Beats inflation:
Inflation is an increase in the pricing of commodities whether it is fuel or food or any other product. So, to combat that price hike, your earnings and funds should grow otherwise the valuation of your fund will reduce over time.
A simple example to understand inflation is the value of $1 in 2000 was higher than the value of $1 now. you could buy so many things with that amount in the past but now, you can’t. You have to spend more money to buy the same item.
However, when you invest your money in stocks, your fund increases as per the inflation rate hikes. So, the valuation of your invested amount also increases as inflation rises.
Now, let’s come to the point.
Is it better to invest in stocks instead of FD?
Till now, we have only discussed the pros of both options but to reach the answers we have to discuss the downsides too of the booths.
Cons of FD:
Low liquidity:
Yes, they come with low liquidity. Fixed deposits are not very liquid, meaning that you cannot withdraw your money before the maturity date without paying a penalty. This can be a problem if you need cash urgently or if you want to take advantage of better investment opportunities in the market. You may also lose out on the interest earned if you break your fixed deposit before maturity.
Low returns:
Fixed deposits offer lower returns than other investment options such as mutual funds, stocks, or bonds. The interest rate on fixed deposits is usually fixed at the time of opening the account and does not change with the market conditions. This means that you may miss out on higher returns if the interest rates rise in the future. Moreover, the interest earned on fixed deposits is taxable as per your income tax slab, which reduces your net returns.
Inflation risk:
Fixed deposits are not inflation-proof, meaning that they do not protect your money from the erosion of its purchasing power due to inflation. The interest rate on fixed deposits may not be enough to beat the inflation rate, especially in the long term. This means that your real returns (after adjusting for inflation) may be negative or very low. For example, if the interest rate on your fixed deposit is 6% and the inflation rate is 7%, your real return is -1%, which means that you are losing money in real terms.
Loss of flexibility:
Fixed deposits are not very flexible, meaning that you cannot change the terms and conditions of your investment once you open the account. You cannot increase or decrease the amount, duration, or interest rate of your fixed deposit after opening it. You also cannot switch from one fixed deposit scheme to another without paying a penalty or losing interest. This can limit your options and choices as an investor.
Cons of share market investment:
The biggest disadvantage of investing in stocks is,
It’s volatile:
A third disadvantage of the share market is the complexity and volatility of the market. The share market is influenced by many factors that are often hard to predict or understand. You have to do a lot of research and analysis to find good investment opportunities and to keep track of market trends and movements. You also have to deal with a lot of competition from other investors who may have more experience, knowledge, or resources than you. Moreover, you have to cope with the emotional stress and pressure that comes with investing in a volatile market.
It’s risky enough:
One of the main disadvantages of the share market is the risk involved. The price of shares can fluctuate unpredictably due to various factors, such as economic conditions, company performance, market sentiment, political events, natural disasters, and more. This means that you can lose money if the value of your shares drops below the price you paid for them. You can also lose money if the company you invested in goes bankrupt or gets delisted from the stock exchange.
Various taxes and fees are to be included:
Another disadvantage of the share market is the fees and taxes associated with trading. When you buy or sell shares, you have to pay a commission to your broker, which can eat into your profits. You may also have to pay other charges, such as stamp duty, exchange fees, clearing fees, and more. Additionally, you have to pay taxes on your capital gains and dividends, which can reduce your net returns.
So, what’s the verdict?
Should you invest in the share market instead of FD?
The answer is, it depends on your financial goals and your financial situation.
Fixed deposits are one of the most popular and safe investment options for many people. They offer a fixed and guaranteed interest rate for a specified period of time, usually ranging from a few months to a few years. However, fixed deposits also have some disadvantages that were discussed aforementioned.
On the other hand, a share market is a place where investors can buy and sell shares of companies. Shares represent a fraction of ownership in a company and entitle the shareholder to a share of the company’s profits and assets. Your earnings could be huge there is no denial at all. But the truth is, the share market is not for everyone. It requires a lot of time, effort, money, and risk tolerance to succeed. You should weigh the advantages and disadvantages carefully before you decide to invest in the share market. You should also seek professional advice from a financial planner or broker if you are unsure about your investment goals and strategies.
So, our suggestion is, if you have some money that you can afford to lose, or your age is comparatively low, it would be a good idea to invest in stocks after thorough research. If you are younger, you have more opportunities of making more money.
But, if your earning sources are limited, it is better to stay away from the shares and you should focus on choosing an FD which gives better interest rates. Most importantly, it’s secure and has no volatility involved with it.
I hope you find this article informational. You can try more informative articles below,
- Want To Become Rich By Investing In Stock Market? Follow These Tips.
- What is an Initial Public Offering (IPO)In Stock Market?
- Top Discount Brokers In India To Get Started With For Beginners.
