Both, gold and fixed deposits are generally considered risk-free investment options. However, the investment made in gold fluctuates constantly. On the other hand, returns on fixed deposits are guaranteed.
Saving and investing is a long-term process. You will have to save money regularly for better a better future. Gold and fixed deposit are two investment options which almost everybody considers during his/her lifetime. However, in recent years, gold prices have risen too fast, and that is why many people cannot invest in both asset class, and they have to choose between one of them. Before investing, it is advisable to compare a few aspects, including the rate of return you get from these two investments over a period of time.
The market for gold constantly fluctuates since gold is an internationally traded commodity. Import and supply of gold depends on price of the US dollar, and international trade relations also impact gold prices. While there are opportunities to gain, a fall in the market could lead to a situation where your cash is stuck in a gold investment. Fixed deposit, on the other hand, provide returns that are entirely independent of market influence. Moreover, company fixed deposits also have a safety rating so that you can compare from several options and choose the highly creditworthy one.
Gold investments may offer you a reasonable rate of return. However, the import of gold in India over the years, from 2012 to 2017, has resulted in gold inflation. The government has taken measures to reduce gold inflation, and as a result, the prices of gold have fallen considerably. Investment in gold is worthwhile as it has given inflation-beating results in the past. However, the dark side is, there is an appreciation in the value of gold because there is a devaluation of the paper currency. Hence, the returns become nominal in the case of gold investment. Fixed deposit, on the other hand, continue to provide fixed returns that are locked-in for the investment term. The returns are guaranteed, irrespective of the amount that you deposit. Interest rates are higher for senior citizens as compared to other customers.
In the case of gold investment, you can invest in gold ETFs, gold equity or gold bullion. The duration of each depends on the type of investment you choose. Fixed deposits also offers flexible terms. You can select a term between 7 days to 10 years, depending on your requirements. However, the flexibility of the investment term would depend on the terms of the FD providing bank or NBFC. Generally, a short-term fixed deposit helps to beat inflation.
Gold investments can be done through a range of options like equity, mutual fund and bullion. It offers excellent liquidity. While you may be able to sell physical gold quickly, there is a possibility of incurring loss. The return depends on current market situations. In case of a fixed deposit, the liquidity depends on the terms of the financial institution. Premature withdrawals, here, are subject to penalty.
Fixed deposits can end up being another source of income for you. You can choose the frequency of interest income you wish to receive. Alternatively, you can opt for a cumulative fixed deposit in which the interest is reinvested to earn better returns. On the other hand, gold does not generate any income. Gold is an asset whose performance depends on the external factors. It is not productive on its own.
Both gold and fixed deposit can help you to avail loan of about 80% of its value. You can take a loan against your respective gold and fixed deposits from banks and financial institutions at competitive interest rates. The interest rates charged on such loans are generally lower than interest rates charged on the personal loan.
Returns on fixed deposit are fully taxable. However, banks also offer tax-saving fixed deposit, which comes with a lock-in period of five years. You can claim tax exemption for investment up to Rs. 1.5 lakh per year under Section 80C of the Income Tax Act, 1961. From a liquidity perspective, it may be noted that a five-year fixed deposit for a tax-saving purpose will not allow withdrawals before maturity.
Fixed deposit is considered to be the most secure investment option in India. The government backs it and provides you with a fixed rate of return on the amount invested. Not only does it carry lesser risk than gold, it is also gives guaranteed returns. All leading banks in India offer a fixed deposit facility to customers. Post digitalization of the banking sector, you can avail most of the banking services online. It has become easier to invest money through online fixed deposit facility.
When it comes to the safety of your investment, fixed deposit outshines the other investment options. Investing in fixed deposit is a better option as FDs give guaranteed returns and are not affected by market fluctuations.
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