Gold vs Fixed Deposit

There is a wide variety of investment options available such as fixed deposits (FD), mutual funds, gold, and more. However, when it comes to low-risk investments, gold and fixed deposits are considered to be the most common options. A fixed deposit is a safe form of investment that assures steady returns.

Gold, in spite of its volatile nature, is another popular choice of investment in India because of its cultural significance. One of the main reasons why people prefer investing in gold is liquidity. While both gold and fixed deposits come with minimal risk and assured returns, it is important that you understand their distinct characteristics and choose the one that suits your requirements.

Fixed Deposit Investment

A fixed deposit is a financial instrument with which you can deposit your money for a tenure of your choice at a fixed rate of interest. When the FD matures, you get the lump sum with high interest. You can choose to receive the interest earned on a periodic basis or at maturity as per your preference.

FD is considered a safe investment option because it offers returns regardless of the fluctuations in the market.

Gold Investment

People in India usually invest in gold during auspicious occasions like Diwali, Dhanteras, and Akshaya Tritiya. Investment experts suggest investing in gold as it not only offers high returns but also lowers the risk of your investment portfolio. There are several ways of investing in gold available in the market such as gold funds, fund of funds (FoFs), gold exchange-traded funds (ETFs), gold bonds, etc.

Investment experts advise 10-15% of gold investment. Many banks offer the facility of availing loans against gold.

Gold vs Fixed Deposit: Key Differences

• Rate of Return: Gold investment is profitable and offers a high rate of return. This investment has produced inflation-beating results. When it comes to a fixed deposit, the bank predetermines the returns when an account is opened.

  The main advantage of fixed deposits is the guaranteed returns regardless of the amount you deposit. Additionally, senior citizens can benefit from higher interest rates when compared to the general public.

• Involvement of Risks: The price for gold keeps fluctuating in short term. However, it has always offered substantial returns in the long run. Gold is a valuable investment because it has been serving as a hedge against inflation as well as currency fluctuations.

  Fixed deposits provide assured returns and remain unaffected by external factors. The returns you will be entitled to depend on the lock-in period you select. Longer tenures will yield higher returns.

• Loans against Investment: Gold and fixed deposits can provide loans of up to 80% of their value. Many banks as well as non-banking financial companies (NBFCs) offer loans against gold and fixed deposits at higher interest rates when compared to the interest rates of personal loans.

• Liquidity: Gold is the most sought-after form of investment for ease of liquidity. You can make a gold investment in several ways such as Gold ETFs, sovereign gold bonds, digital gold, etc. Although gold offers excellent liquidity, the returns depend on the present market scenario.

  On the other hand, the liquidity on fixed deposits depends on the deposit terms of the financial institution you choose. You get the option to liquidate your fixed deposits prematurely. However, most financial institutions will levy a penalty on such premature withdrawals.

• Tenure Flexibility: Gold investment can be done in various forms like gold bullion, gold equity, or gold ETFs. The term is determined by the investment you make. Similarly, fixed deposits come with flexible tenures ranging between seven days and 10 years. Keep in mind that the flexibility of the tenure depends on the financial institution you choose.
• Income Tax: The returns from a gold investment are classified as Capital Gains. Thus, you can avail of the indexation benefit. On the other hand, the interest earned on a fixed deposit will be taxable as per the current income tax rates.
• Income Generation: Gold cannot generate income on its own. It is an asset you can use to build income in the long term. With fixed deposits, you can receive the returns on a periodic basis by choosing periodic payouts.

Gold vs Fixed Deposit: Which Investment Is Better?

Both gold and fixed deposits are low-risk investment options and provide guaranteed returns. A gold investment offers high returns along with the flexibility to buy and sell it easily. If you wish to gain substantial returns over time and save on tax, you should opt for gold investment.

Fixed deposits provide low but steady returns and are not impacted by the fluctuations in the market. Therefore, based on the factors mentioned above, it is crucial that you invest according to liquidity needs, financial goals, and risk appetite.

FAQs on Gold vs Fixed Deposit

1. Is it safe to invest in gold?

   Gold is a good investment if you want to gain high returns in the long run. It offers liquidity and also serves as a hedge against inflation.

2. What are the different ways to invest in gold?

   Gold investment can be done in various forms like gold ETFs, gold bonds, funds of funds, and gold funds.

3. What is the percentage of gold investment recommended by investment experts?

   Investment experts recommend dedicating 10-15% of your investment portfolio to gold and gold-related investments.

4. Is it good to invest in a fixed deposit?

   Yes. Fixed deposits are safe and offer steady returns with minimum risk.