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It is important to remember that investment needs will vary from individual to individual, based on factors such as their income, family size, financial liabilities, etc.
Savings and investments are an essential part of managing your finances. Investments help create wealth and allow us to deal with inflation and increased cost of living. They are also our insurance for dealing with future uncertainties. While many investment options are available, it is important to choose according to your risk appetite and investment goals. To help you make informed decisions about which investment is better, here is an in-depth comparison between Fixed Deposits (FD) vs. Stocks vs. Mutual Funds vs. Gold vs. Cryptocurrency.
| Criteria | Fixed Deposit (FD) | Stocks | Mutual Funds | Gold | Cryptocurrency |
| Risk | LOW. Unless there are any major economic disruptions, your FDs will be safe. | HIGH. Even the top-rated stocks can witness fluctuations, based on evolving market dynamics. However, risks will be relatively low if you choose the right stocks and stay invested for the long-term. | MODERATE to HIGH. It will depend on the type of mutual funds. If you choose a mutual fund with a diversified portfolio, the risks will be moderate. Mutual funds focused on specific equity stocks will have higher risks. | LOW to MODERATE. Until scientists discover an alternative for gold, your gold investments will be safe. However, do watch out for periodical fluctuations. | HIGH. Predicting fluctuations in cryptocurrency is a major challenge. You can minimize the risks by staying invested for the long-term. |
| Fixed Deposit (FD) | Stocks | Mutual Funds | Gold | Cryptocurrency | |
| Lock-in Period | Usually 6 months to 5 years. However, you have the freedom to withdraw before the due date. Your only loss will be some portion of the interest payment. | No lock-in period. You can sell your stocks anytime the stock markets are open. | Most mutual funds do not have a lock-in period. However, to get max returns from mutual funds, you will have to stay invested for the long-term. | No lock-in period. However, you may suffer a loss or get lower profits if the current gold prices are on a downward slide. | No lock-in period. Sell anytime you feel like it. |
| Fixed Deposit (FD) | Stocks | Mutual Funds | Gold | Cryptocurrency | |
| Expected Return | Interest on fixed deposits varies from bank to bank. It is usually around 5% to 7.5%. Some banks and NBFCs offer more than 8% to 8.5%. | Varies widely. Average can be considered around 10% to 12%. However, it can be much lower or much higher depending on market conditions. | In the short term, mutual funds can deliver returns of around 8% to 12%. Returns will be more if you invest for longer durations. | Can vary. You will have to invest for the long-term to register max gains. | Highly volatile. People have become millionaires whereas there are also cases where investors have lost a great deal of money. |
| Fixed Deposit (FD) | Stocks | Mutual Funds | Gold | Cryptocurrency | |
| Liquidity | HIGH. Option of early withdrawal is available. You will only lose some portion of applicable interest. | HIGH. Sell anytime you want. | MODERATE to HIGH. In most cases, you can sell your mutual funds anytime. Some mutual funds may have a lock-in period. | HIGH. Both digital and physical gold can be sold easily. Companies like Muthoot Gold Point provide a secure and reliable way to sell your physical gold. | HIGH. You can sell your cryptocurrency anytime you want. |
| Fixed Deposits (FD) | Stocks | Mutual Funds | Gold | Cryptocurrency | |
| Tax Implications | The interest amount earned on fixed deposits is taxable. | Both short-term and long-term gains from equity stocks are taxable. | Income from mutual funds is treated as capital gains and taxed accordingly. | Both short-term and long-term gains from gold are taxable. | Income from cryptocurrency investment is taxable. |
So, which investment is better?
As is evident, each investment option has its own advantages and disadvantages. For the majority of people, the safest options are fixed deposits (FDs) and gold. You need not be hassled by the prospect of buying and selling physical gold. You can instead buy digital gold that is backed by actual physical gold. It is a safe way to transact in gold, all while getting all the benefits of investing in physical gold. Many banks as well as certain companies such as Tanishq, MMTC-PAMP, Caratlane, etc. offer digital gold investment options.
Talking about equity stocks and mutual funds’ investments, you may need to develop a good understanding of how the stock markets work. You will have to invest time and effort, along with your savings to get the best returns from stocks and mutual funds. Or, you can simply outsource such tasks to your bank or mutual fund players.
You can seek guidance from mutual fund providers such as Nippon India Mutual Fund, Mirae Asset Large & Midcap Fund, Motilal Oswal Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, etc. Equity stocks and mutual funds can deliver returns that are much higher than the rate of inflation. This is why these are considered better than fixed deposits and gold investment. However, as the risk is higher, you need to tread with caution.
Talking about cryptocurrencies, it is important to note that these are not backed by any type of physical assets or guarantees. Moreover, these are not governed by any government regulation. The change in valuation of cryptocurrencies is based merely on speculation. This is why prices can witness sharp fluctuations. Cryptocurrencies have been found to be susceptible to market manipulation. Unless you have money that you can afford to lose, investment in cryptocurrency should be avoided. However, there are many people who consider cryptocurrency to be highly profitable. Ultimately, the choice is yours.
Your focus should be on creating a healthy investment portfolio. The old saying of not putting all your eggs in one basket is still relevant. You can allocate some money to all investment options. Assuming you have 100 bucks, you can invest 20 bucks in fixed deposits, 30 bucks in stocks, 20 bucks in mutual funds and 15 bucks each in gold and cryptocurrency. This is an ideal investment basket. You can adjust slightly, based on your specific needs and goals.
