What are the differences between Fixed Deposit and Stocks?

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  • By BYSOS Expert
  • July 28, 2021

Fixed deposits and stocks are two common investments available to us today. Depending on what your risk appetite is and how much you're willing to invest, you can choose the right option.

If you're a newbie in the area of investing, the options can seem puzzling. The best option which you can opt is to practice investment using fantasy games like BYSOS – Stock Fantasy Game.If mutual funds, market shares, fixed deposits and recurring deposits seem similar, why not take a look at the differences between the various investment options. After all, you must understand all your options thoroughly before making a choice.

A Basic Overview of Fixed Deposits:

FDs (Fixed Deposits) are of two types, cumulative and non-cumulative. A cumulative FD compounds interest annually, whereas the non-cumulative FD pays out interest at regular intervals. These intervals can be monthly, quarterly, semi-annually and annually. In both cases, your money is locked in for a fixed tenor.

Here are the advantages of Fixed Deposits:

They are Low Risk: Fixed deposits are low-risk investments as they aren't dependent on market fluctuations. So, they help your money grow at a steady pace. Moreover, they offer a good rate of interest that usually ranges between 7 –8 and is pre-determined. While you don’t have the opportunity of making windfall gains, your money is safe and you get a fixed sum at the end of the tenor. This type of investment is greatly favoured because of its high stability.

Fixed Tenor: FDs have a fixed tenor so your money is safely invested for a period of time. You have the option of choosing between 12 and 60 months. However, it offers the option of premature withdrawal. If you need money, you can easily break your FD or take a loan against FD (/can-i- get-loan-on-fixed-deposit). Do note that if your interest exceeds Rs. 10,000, it is subject to tax. Also, if you make a premature withdrawal, you stand to lose a portion of the interest.

A Basic Overview on investing in stocks:

Investing in stocks is entirely dependent on the market forces. Even if you have in-depth market knowledge and are a seasoned risk-taker, you may not always get assured returns. You may make windfall gains, but it can't always be certain. So, if you're a beginner, it is wise to invest only a small amount of money to test the waters. Additionally, it must be noted that this investment tool is better suited to individuals with a high risk appetite. Your risk appetite is defined by how well you can absorb a financial loss. If you have a low risk appetite, keeping in mind your financial condition, it is better to steer clear of the stock market, at least for the time being.

Here are the advantages of Investing in stock market:

Gains

The most important aspect of investing directly in markets is the potential of the market to deliver the kind of gains it does.

Hassle-free trading

Buying and selling stocks or stock trading is no longer a complex mechanism. With many Apps on your mobile phone, trading is just a click away.

Guard Against Inflation

The primary purpose of investments is to secure our future, but we need to check in upon inflation from time to time.

Liquidity

Stocks are termed as liquid assets i.e. an asset that can be easily converted to cash, which has many buyers at any given point in time.

Take advantage of the Booming Economy

The stock market is always a factor in the booming economy and reacts to all the economic growth indicators such as GDP, inflation, corporate earnings, and so on.

A Well Regulated and Transparent Framework

The Indian stock market is regulated by the Stock Exchange Board of India (SEBI). SEBI is responsible for regulating the stock exchanges, their development, and protecting the rights of the investors.

Flexiblity To Invest in Smaller Amounts

As a newbie investor, you can start with small investments in the market by buying small-cap or mid-cap stocks or buying large-cap stocks but in smaller units. Stocks do not demand a lump sum investment amount.

Dividend Benefits

A dividend is an additional income for investors, which is paid annually by most companies.

An Ownership Stake in the Company

Buying a stock essentially means that you are buying an ownership stake in that particular company. It will give you a sense of ownership in the company that you like.

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