FD vs Equity: Which one is better for you? Know Details

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While it is essential to have a stable income, you can’t just rely on your savings when building wealth. This is where investments come into play, as they are key to securing your current and future financial security.

Not only will this help you retain your wealth, but also grow it without letting inflation erode its value. Thankfully, there are several instruments you can choose from based on your financial objectives, overall investment goals, and risk tolerance.

Some popular options are fixed deposits (FD) and equity investments. The FD vs equity comparison is an important one to consider as both these instruments are great options for any investor.

However, simply comparing FD vs equity won’t help much if you do not clearly understand how these instruments work. So, read on to learn the difference between FDs and equity investments and how these instruments work.

Difference Between FD vs Equity

Factor	FD	Equity
Risk	With an FD, the risk is little to none. This is because the returns depend on the interest rates, which remain unaffected by market volatility.	The rewards are high with equity, but that is only because the risk is equally high. If you go all in or do not account for losses, you could risk losing your entire investment.
Tax	Interest earned from FDs is taxable.	You may be subject to long-term and short-term capital gains tax as applicable.
Returns	The returns for an FD are informed to you before you take the policy, usually ranging between 6-9% depending on your issuer.	The returns are based on market performance and movements. Here, timing the market is key to ensuring positive returns.
Liquidity	You can’t withdraw your money without prematurely withdrawing the FD, which attracts a penalty. You can, however, avail a loan against your FD.	You can sell your equity stake at any time if you so wish to.
Inflation	Depending on the inflation, there may be instances where the returns from an FD are almost negligible when inflation rates are factored in.	Investments are rather resilient to inflation as they move with the market. However, inflation does impact volatility and, in turn, influences returns.

What are Fixed Deposits?

Fixed deposits are a reliable and safe savings instrument. Here, your money is deposited with a financial institution, and it accrues interest at a fixed rate. This is why it is known as a fixed-income tool, as you can confidently forecast earnings from day one.

An attractive feature of an FD is that you get a higher rate of interest than what you get in a normal savings account.

Moreover, you choose a specific tenor, and the predetermined interest rate is applicable throughout.

With an FD, you can get your earnings periodically or as a lump sum at maturity. In both cases, the principal amount is locked in for the entire tenor, but you may choose to prematurely withdraw these funds.

You can book an FD with a bank, an NBFC, or any other financial institution. Since a fixed deposit is a secure savings tool, the returns are not very high. However, certain fixed deposits, such as those offered by banks, are backed by the Government of India and provide assurance to investors.

Tax Saver FD

If you want to invest a lump sum amount and avail tax benefits, this fixed deposit is the best option. When you book a tax saver FD, you receive tax exemptions on deposits up to ₹1.5 Lakhs per year according to Section 80C of the Income Tax Act.

Offered by banks and many NBFCs, these FDs have a lock-in period of 5 years. During this period, you cannot make a premature withdrawal. While you may enjoy tax benefits on the deposit amount, remember that the interest earned is taxable.

Cumulative Fixed Deposit

This is an FD type in which your interest gets reinvested and compounded. In a cumulative FD, the interest you earn is reinvested and grows alongside the principal amount. Once the FD matures, you get the full amount.

Consider a hypothetical example of ₹2 Lakhs as the deposit amount at an interest rate of 6.80% p.a. for a tenor of 1 year. With the cumulative option, you can earn ₹13,600 as interest at maturity.

The returns in a cumulative FD are generally higher than that of a non-cumulative FD. This is because, in the latter, you get interest payout at regular intervals and, therefore, cannot take advantage of compounding interest.

Flexi Fixed Deposit

A flexi fixed deposit provides flexible options by combining the principles of a savings account and a fixed deposit. In a regular FD, you cannot withdraw the deposited money before maturity.

However, in a flexi fixed account, you can withdraw specific amounts. The unique feature here is that your FD is linked to your savings account. This way, while you earn a higher interest rate on a fixed deposit, you can also access your funds just like a savings account.

All you need to do is inform your issuer about the withdrawal in advance. Since the FD is linked to your bank account, there is a continuous flow of money between both accounts.

Senior Citizen Fixed Deposit

These deposits are mainly designed for senior citizens. Opening a senior citizen fixed deposit ensures higher returns as senior citizens get a higher rate of interest. Most FD issuers offer interest rates between 0.20%-1% p.a., more than the prevailing interest rates for non-senior citizens.

Armed with this information, you now have a better understanding of this instrument. Now that you know about fixed deposits, you need to know the answer to the question, ‘What are equity investments?’

What are Equity Investments?

An equity investment is an investment in a company for which you get certain ownership of the company. There are different ways in which you can invest in a company, and when you make an equity investment, you buy the company’s shares.

You can do so directly through the stock market, and various brokers will allow you to buy or sell shares of particular companies. You can also invest in a basket of companies through a mutual fund, which pools together money from various investors and then buys shares in companies across a number of different sectors and sizes.

Managed by professionals, these funds allow you to save the time and effort needed to create your own portfolio of stocks. You can also invest in equity through other means, such as Exchange Traded Funds (ETFs) and Derivatives, such as options and futures, which are typically used by more experienced investors.

In equity markets, with shares and options etc., you can triple your investment within a matter of days if you time the market right. However, you could also very easily lose the entire amount, especially if you do not approach equity investing strategically.

As such, the prime difference between FD and Equity is that a fixed deposit offers modest returns with little to no risk. Equity investments, on the other hand, offer virtually unlimited returns, but this prospect also comes with a major downside or a very high risk.

Final Thoughts on FD vs Equity

Now that you are familiar with the nuances of FD vs Equity investments, understand that both investments have their merits and downsides. Your market knowledge plays a major role in deciding the benefits for you when comparing FD vs Equity investments.

If you do not understand the stock market, then you are better off investing in an FD, as it requires no intervention on your end. On the contrary, if your market knowledge is sound, you could use it to your advantage to get higher returns. However, the best approach is to diversify your investment portfolio.

When it comes to the equity vs fixed deposit debate, you can consider investing your money in both and a few others, such as debt, property etc., to maintain a balanced portfolio.

This way, if one sector or investment is not doing well, you can adjust for the losses. The more diversity you achieve, the lesser your risk. Regardless of where you land on the FD vs equity debate, invest easily in the instrument you want on Bajaj Markets.

Fixed Deposit and Other Investment Comparisons
Bonds Vs FD	FD Vs RD	NPS Vs FD
Certificate Of Deposit Vs Fixed Deposit	FD Vs Real Estate	PPF Vs FD
Corporate FD Vs Bank FD	Fixed Deposit Vs Life Insurance	Short Term FD Vs Long Term FD
Cumulative Vs Non Cumulative FD	Fixed Deposit Vs Savings Account	SIP Vs FD
Debt Funds Vs FD	Liquid Fund Vs FD	Sukanya Samriddhi Yojana Vs FD
ELSS Vs FD	MIS Vs FD	Time Deposit Vs Fixed Deposit
FD Vs NSC	-	-

Disclaimer

The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort.

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

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Monthly Interest on FD

Equity does not guarantee returns and is highly volatile. As such, there are a lot of risks involved.

Generally, bank FDs are backed by the government, and the risk is very low. On the other hand, company FDs have stability ratings denoting the safety of your investment. Therefore, the risk of you losing money in an FD is generally low but depends on the issuer you choose.

Investing in equity requires some degree of knowledge about how stock markets work and the nuances of different companies and different sectors, even if investing directly in a mutual fund. If you lack time to get a basic understanding of the same, an FD may be preferable. However, you should always aim for diversity in your investment portfolio.

Interest rates for FDs depend on the financial institution factors like the repo rate. However, be sure that you do not choose an issuer solely on the interest rates. Read the terms of your policy carefully before making any investments.

It depends on your financial goals, risk tolerance, and investment horizon. Fixed deposit is a low-risk investment option where the returns are relatively predictable. Here, the returns are generally lower compared to equity. Equity, on the other hand, carries higher risks but also has the potential for higher returns.

Investing in equity has the potential for higher returns compared to fixed deposits over the long term. Equity investments allow for ownership in companies, and as the companies grow, the value of the investments can appreciate. Fixed deposits, on the other hand, usually offer fixed interest rates and returns.