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Should you invest in Stock Market or Fixed Deposits?

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Investing money could be a very smart move for planning a better future. But it is also followed by a question of where to invest so that the returns are promising. Whether to invest it in fixed deposits or go for stock market investment? Do you too face this problem of being unable to reach a conclusion? Well, think no more because this article is all about that and it will help you navigate through it. 

In this article, we will discuss fixed deposits and stock market investment separately, and their benefits, so that it helps you decide which one to prefer. 

What is a fixed deposit and what is its significance in investment? 

Being one of the oldest ways to invest money, a fixed deposit is a form of investment in which you grow a lump sum amount of money at a fixed interest rate over a set period. It is a very safe way to invest money as it is free from market-related risks and guarantees you promising returns.

Although there are some tax deductions from the interest amount, you can still make a handsome amount of money from the interest rate you receive. It is also free from all types of market fluctuations which is another big advantage. 

What are some of the advantages of investing in a fixed deposit? 

Here are the reasons why you should be investing in a fixed deposit rather than in any other investment options. 

  • Assured returns:

The returns on fixed deposits are assured under any circumstances. Though the amount might not be very big, since it is consistent, you should not have a problem investing in it. 

  • No market-related risks:

There are no market-related risks in fixed deposits, unlike stock market investments. Markets might fall, or even might increase, but the interest rate and the returns of the fixed deposit remain unaffected. 

  • Easy renew:

Fixed deposits can be easily renewed according to your preference and requirements. If you want to renew your existing plan, you can go to your bank and ask for a renewal, which is an easy process. 

  • No risk of losing principal:

Since the whole amount in your fixed deposit is completely free from market fluctuations and risks, there is no way for your principal amount to be affected. 

  • Serving the economy:

Fixed deposits help you maintain the liquidity of funds which increases the circular flow of money in the economy. Not only is it a safe savings option, but it also serves benefits customers and the economy. 

What is a stock market investment and what is its significance? 

A stock market is a place where different companies buy and sell their shares to gain profits. Here, a buyer sets a specific price for a share that a seller agrees to buy. So, all in all, it represents the fractional ownership in a company in which investors buy a stock which they think will go high in the coming future.

What are some of the benefits of investing in a stock market? 

  • More returns:

Stocks give you more returns than most of the other investment options for a longer period. When you buy a company’s shares, you assess the company’s assets in the future and expect them to grow. These equity returns are way more than other returns that you make from fixed deposits. 

  • Immunity to taxes and inflation:

Tax deductions and inflation can both harm your wealth and create discomfort in your journey of investing money. But in stock market investment, you get better tax treatment over some time and prevent the negative effect of inflation. 

  • High liquidity:

Since average daily volumes are quiet on the higher side in stock market investment, there is always high liquidity. This liquidity makes it very easy for you to buy or sell any stock you want shortly. 

  • Acquiring ownership:

If an investor acquires a piece share of a company, he or she has partial ownership of the company. In some cases, if this percentage is high, you get some powers of the company like the right to vote. 

Which one is better – fixed deposits and stock market investment? 

To answer this question, a fixed deposit seems to have a better grip over stock market investment and here is why:

  1. Risk factor:

Fixed deposits might not give you as high returns as a stock market, but it is completely free from market-related risks. The stock market on the other hand might give you high returns and ownership but still is subjected to risks. 

  1. Premature withdrawal:

When you invest in a fixed deposit, you can withdraw a portion of your principal amount if you have an emergency, whenever you want. But this advantage is not there in a stock market investment as you buy shares of a company in the place of actual money. 

  1. Periodic income:

Income is periodic and regular in a fixed deposit as your principal amount gives you assured returns. On the other hand, there isn’t any periodic income in a stock market investment, rather the income is not uniform. 

Wrapping it up

Fixed deposits seem to be a more liable and safe option than stock market investment. If you correctly understand the market structure and shares, then you should invest in stocks. They offer you much higher returns. But, if you don’t understand the market structure, and don’t know much about the risk factors, you should go for a fixed deposit. 

If you love reading articles on topics like stock market investment, fixed deposits, mutual funds, SIPs, financing, etc., visit Piramal Finance.