There are some people who assumes “Equity Investment as Risky”! They have heard of the market crashes and real-life stories of traders who have burnt their fingers in stock market! Is stock market really a “Risky Asset Class”? Absolutely No! If you have some special skill of “Buy Low and Sell High” and wait for the long-term with patience stock market rewards investors
Even today some investors(might be “Savers”)refuses to invest in stock market on “fear of loosing capital” instead they prefer to do Fixed Deposits in Banks. Yes investing in stock market involves “Risk” but what about risk in fixed deposits? Strange to hear! But it’s fact!
Let’s discuss the Risks in Fixed Deposits in detail-
- Even though Fixed Deposits offers guaranteed returns they are far below the inflation
- As per government’s estimate inflation in India is about 7-8% p.a where the fixed deposits are offering only 5-6% p.a (current interest rates) which depreciates the value of rupee in the long term
- Fixed Deposit interest is calculated on annual basis(on yearly basis)which offers lower returns than inflation rate
- Even though fixed deposits can be cancelled at any time, there is “Penalty” for premature closure of the deposit. Already F.D returns are lower that too with penalty you will get lesser corpus
- “Returns from Fixed Deposits are added to the income of the investor(depositor)and taxed as per his/her applicable tax slab” whereas equity funds are taxed only when you redeem your investments that too capital gain of 1 Lakh is exempted from tax, only the capital gain above 1 lakh is taxed at 10%
If you are doing Fixed Deposits(F.D) as they gives assured returns, you should consider-
Disadvantages of doing F.D–
- Lower interest rate than inflation
- Lower Returns than the inflation
- F.D Returns are added to the income of the depositor
- Returns are taxed as per individual’s applicable tax slab
- You have to submit Form 15G(For General Public)/Form 15H(For Senior Citizens)every financial year to avail TDS Deduction
Even though equity investing involves risk, F.D also carries all the above risks. Indeed in equity investment capital gain of 1 Lakh is exempted from tax where as in F.D it is added to the income of the investor.
So consider all these factors and take wise decision. Choice is yours!
Disclaimer- This article is intended to spread awareness on the pros and cons of fixed deposits and inform the tax benefits on the both asset classes. There is no force to invest in equity; in the article we have also discussed on fear of loosing capital in equity. So take decision on your own! This article is only for informative purpose only!