{"id":22831,"date":"2011-11-25T00:00:00","date_gmt":"2011-11-24T18:30:00","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/stocks-vs-fd-what-is-the-better-bet\/"},"modified":"2011-11-25T00:00:00","modified_gmt":"2011-11-24T18:30:00","slug":"stocks-vs-fd-what-is-the-better-bet","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/stocks-vs-fd-what-is-the-better-bet\/","title":{"rendered":"Stocks Vs. FD \u2013 What\u2019s the Better Bet?"},"content":{"rendered":"
\"Stocks<\/figure>\n

For a newbie investor, there are so many options, so many pros and cons. The jumble and jargon doesn\u2019t make it any easier. It makes you wonder where to even begin.<\/p>\n

Starting out in the same predicament, I armed myself with a file of choices and trivia and attacked every investor with a host of questions. But, the mixed reviews just added to my confusion. A number of people gave rave reports on the stock market, yet it seems a majority of Indians stay clear of it due to the many uncertainties.\u00a0 It makes you wonder though – how have people always managed to make more money in the stock market?<\/p>\n

An Explanation: The story of the 3 Portfolios<\/h2>\n

Three brothers decided it was time to invest some money. Rather than blow up their wealth on their personal whims and fancies, they were going to put a bit aside and let it multiply.<\/p>\n

Each invested the same amount of money at the same time with 70% put straight into the Public Provident Fund<\/a>.<\/p>\n

As for the rest of their money, they had a few options to choose from.<\/p>\n

Chintamani, the worrier was leaving nothing to chance. He put his 30% straight into Fixed Deposits. The risk – free, fixed return option with its regular income would make him sleep easy at night.<\/p>\n

Dhyanchand was the cautious one. He put 20% of his money in Fixed Deposits and the remaining 10 % into the Stock Market. He understood that investing in stocks could make him money, but in this volatile economy, who knew if he\u2019d even make a profit. Wasn\u2019t it better to be safe than sorry?<\/p>\n

Hoshiarchand, the smart and calculated risk taker, had shocked the others by investing his entire 30 % in the share market. Leaving out a safety net seemed a reckless thing to do. Wasn\u2019t Hoshiarchand bound to regret his investment decision?<\/p>\n

Here\u2019s what Happened:<\/h2>\n
\"Stock<\/figure>\n

The PPF generates an after tax return of close to 12%, FD\u2019s give about 6% returns, while equity generates 15% considering long term investing principles.<\/p>\n

Thus, while Chintamani made close to 10% returns by investing 30% portfolio in FD\u2019s, Dhyanchand made about 11% returns by investing some of his portfolio in equity, while Hoshiarchand made close to 12.5% by investing his 30% portfolio in equity. That means Hoshiarchand made 2.5% more than Chintamani. While you may think that 2.5% is not much, given a time period of 30 years Hoshiarchand would actually make double the returns as compared to Chintamani!!<\/p>\n

Facts of Fixed Deposits<\/h2>\n

This clear cut investment option allows you to deposit your money for a specified amount of time, generating a pre-determined interest. Popular for its low risk status and regular income, it\u2019s a strong contender for the small stakes crowd.<\/p>\n

The Flip Side<\/h3>\n

1. Lower earnings<\/strong> An FD generally gives you between 5 – 6 % return, which is far lower than the other options. It\u2019d take a long time to see your money grow. 2. The Effect of inflation<\/strong> It may seem risk free, but in times of inflation, you can lose money. If you get a 6% interest on your FD\u2019s and inflation rose to 8%, you\u2019d be down by 2%. 3. Tax on earnings<\/strong> Although there are some tax benefits, the profit made on Fixed Deposits is taxable. 4. Time Restraint<\/strong> Withdrawing from a FD before the due date ends up costing you. In case of an emergency, if you break open the deposit, you will get less than your owed percent.<\/p>\n

How Stocks Make the Money<\/h2>\n

In this fickle economy, playing with stocks might seem a game of chance. A seasoned investor knows though that there are rules and strategies with which to get ahead, along with a bunch of benefits:<\/p>\n

1. Instant Access <\/strong>With stocks, you can pull out your money at any time. It all depends on whether you want it sooner or later. 2. Tax Friendly<\/strong> The profit you make on dividends is tax-free. 3. Outwitting inflation<\/strong> The stock market gives you a chance to buy in the slumps and sell in the boom. History has shown that it has always recovered from inflation. 4. Highest Earnings<\/strong> At the end of the day, putting your money in the equity market gives you the greatest returns.<\/p>\n

The Reckoning<\/h2>\n

At the end day there are two paths to choose from. The question to ask is whether it\u2019s less risk or more profit you want to make.<\/p>\n

FD\u2019s come with an accolade for the low risk category, but they also mean a low earning outcome.<\/p>\n

The stock market however may seem a random game of chance, completely dependent on the luck of the draw. An informed investor knows though that yes, there are some odds at stake, but also a far bigger fortune to be made!<\/p>\n

Also Read:<\/strong>\u00a0Trading or Investing \u2013 What\u2019s right for you?<\/a>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Compare stocks vs fixed deposits\u2014returns, risks, inflation impact & tax benefits. learn why equities beat fds for long-term wealth creation in india.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_is2025_no_summary":false,"footnotes":""},"categories":[1144,1151],"tags":[],"class_list":["post-22831","post","type-post","status-publish","format-standard","hentry","category-sensible-investing","category-stock-investment"],"_links":{"self":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/22831","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/comments?post=22831"}],"version-history":[{"count":2,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/22831\/revisions"}],"predecessor-version":[{"id":23243,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/22831\/revisions\/23243"}],"wp:attachment":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media?parent=22831"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/categories?post=22831"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/tags?post=22831"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}