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Gold Vs FD: What Is The Best Investment Option?

Gold Investment and Fixed Deposit (FD) Investments are different in nature but still among the most popular forms of investments in India. Deciding between the two comes easy if you know gold vs FD returns, along with the differences in ease of liquidity and term flexibility.
January 12, 2021

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If you ever seek investment advice, two of the most common suggestions you will get from family and friends are Fixed Deposits and Gold. An FD (Fixed Deposit) is considered one of the safest investment options available in the market. 

Gold, on the other hand, is known to do well during market lows. Data also indicates the gold price has been on the rise in the past decade. However, the price of gold fluctuates frequently. 

This can be due to several influences including the value of USD, international trade relations, import duty, and supply of gold, but has been growing steadily nonetheless. 

FD is not linked to any external market factor. The rate of the return and tenure are the only two things to choose. Therefore, an FD gives predictable and assured returns. Unless of course the money invested is withdrawn before the end of the lock-in period.

However, there are downsides to an FD too. Let’s look at each of these investment instruments in detail. We will then do a comparative analysis of gold vs FD returns vs digital gold. It is far more secure and comes with assured purity.

Gold Investment

Gold is a sought after asset that holds cultural significance in India, and many other societies, which ensures that there is a perpetual demand for gold, and it rarely dips. 

Investment experts recommend adding gold investments to your portfolio and distribute risk. The recommended percentage often varies from 5 to 15%. 

How To Make A Gold Investment?  

There are three ways of buying gold: one is the good old traditional way of walking into a store and buying gold. This can be in the form of jewellery, bars or coins. 

The other way of investing in gold is by buying digital gold on an app like Cube.

Digital gold is preferred over physical gold as there are no making charges. Moreover, the gold that you invest in comes with guaranteed safety and assured purity. 

The final way includes buying paper gold, which means you own gold on paper. This includes instruments like gold bonds, gold funds, exchange-traded funds or ETFs, and fund of funds (FoFs). 

Read this blog to find out about the 6 best ways to invest in gold in India.

Benefits Of Gold Investments

Gold is a convenient investment option and offers multiple benefits.

  • It offers a reasonable rate of return; offers high returns if sold at the right opportunity
  • Gold is used as a hedge against inflation and other market-related concerns 
  • Gold is highly liquid and can be bought or sold easily
  • Banks offer loans against gold at attractive rates

5 Things To Keep In Mind

  • Digital gold is less risky compared to physical gold
  • Gold does not generate passive income
  • Gold prices are related to factors like inflation, import duty, trade relations and supply of gold
  • You need to keep a constant eye on the ongoing gold price and trends to buy or sell gold at the right time 
  • Returns from gold trading may be subject to tax, depending upon the amount

Read this blog to know more about 10 Best Passive Income Ideas for 2021. 

Fixed Deposit Investments

An FD is considered a safer investment option in comparison to stocks and mutual funds. It is not influenced by external factors and is therefore a potential option for long-term and short term goals. 

The rate of return on FD usually ranges from 4% to 6% and varies from bank to bank. Even though there are assured returns, it hardly beats inflation. 

However, there are no indexation benefits either like in case of mutual funds and stocks. Indexation benefits will help you bring down your taxable gains.

Want to know more about investment options better than FDs? Read this blog to know more.

How To Make A Fixed Deposit Investment?

To make a fixed deposit, you need to choose the amount and the tenure that suits your objective of investment. You can start a fixed deposit yourself using the internet or mobile banking.

Benefits Of Fixed Deposit

  • FD is one of the simplest and quickest investment tools
  • The return on investment varies from 4% to 6%
  • It is a low-risk investment that is not influenced by market fluctuations and offers guaranteed and steady returns.
  • It offers compounded return, which means that the interest earned is added to the principal amount for the next year.
  • Fixed Deposits help you save income tax under Section 80C (up to INR 1.5 lakh)

However, Equity Linked Saving Scheme (ELSS) funds offer better tax benefits as the dividend earned on ELSS is not taxable. Read this blog to know more about tax saving mistakes to avoid in 2021.

5 Things To Keep In Mind

  • You have the flexibility to withdraw it at any given point in time but it will result in a penalty as well as the loss of interest earned
  • The interest earned on FD is completely taxable
  • There is flexibility in terms of the amount and the time for which you wish to invest
  • If you are planning to save for a short-term goal, FD is a good investment tool for it
  • An FD is stable in nature; you needn’t worry about market fluctuations

Gold Vs FD Returns

If we look at the gold price for the last 5 years, it grew very slowly from 2015 to 2017 but then it paced up a bit in 2018 and 2019. 2020 saw 24K gold prices surge up to INR 55,400 per 10 grams in the month of August.

Thus, gold may be a potential option for the long term. FD returns, on the other hand, have been quite low. In fact, they have been dipping over the past few years. 

Recent FD returns are down to as low as 4.90% for a 10 year term as per data in 2020. The average return for most gold investments is between 4.5% and 5.5%.

Should you invest in gold or mutual funds? Read this blog to know more. 

Gold Vs FD Vs Digital Gold: A Comparative Analysis

To help you decide which is the best investment option for you, here’s a quick comparison of gold, FD, and digital gold.

 

Parameter

Gold

Fixed Deposit

Digital Gold

Ease of Investing

Moderately easy

Easy

Very easy

Average Rate of Return (5+ years)

4.50% to 5.50%

2.50 % to 6.70%

4.50% to 5.50%

Liquidity

High

Low

High

Tax

STCG: Taxed as per income slab before 3 years


LTCG: Taxed at 20% plus cess after 3 years

It is a tax-saving instrument but the interest earned is taxable.

STCG: Taxed as per income slab before 3 years


LTCG: Taxed at 20% plus cess after 3 years

Risk Level

Low Risk

Low Risk

Low Risk

Safety

Low

High

High

Fixed Deposits Or Mutual Funds? Which Is Better & Where To Invest!

Summary

Choosing between gold and FDs depends on a lot of factors, including the expected return rate, the desired level of flexibility to withdraw the investment at any time, and your risk-appetite. 

Digital gold offers better benefits than physical gold in many ways. It is preferred over traditional gold investments for three main reasons: 

  • You don’t have to pay any making charges 
  • It is stored safely and securely 
  • It comes with assured purity

Watch this video to know more about alternative investments



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