Gold vs. Fixed Deposit: Discover Which Investment Option Is Safer!

One thing the COVID pandemic has taught us is to never rely solely on our regular income. If we are ever unable to earn our regular paycheck, we can quickly find ourselves in a difficult financial condition. To avoid ever being in such a situation, you need another source of income and that's where investment comes into play. Investing is not only a great way to make your money earn more money for you, but also secure your future in the process.

Table of Content

• What is Gold Investment?
• What is a Fixed Deposit?
• Fixed Deposit (FD) Vs. Gold: Key Differences
• Conclusion

There are a range of investment options available in India, including stocks, real estate, mutual funds, fixed deposits, gold, and more. However, when it comes to low-risk investment options, fixed deposits and gold take centre stage. While both these options offer minimal risk and assured returns, it's important to know their distinct characteristics and choose the one that suits you best.

What is Gold Investment?

Gold has always had a special place in the hearts of Indians, brought excessively on auspicious occasions such as Diwali, Akshaya Tritaya, and Dhanteras. Besides its cultural significance, gold's investment returns are high, making it a good addition to an investment portfolio to reduce the overall risk. Investment experts even advise 10-15% of the portfolio to be dedicated to gold or gold-related investments like fund of funds (FoFs), gold exchange-traded funds (ETFs), gold bonds, etc.

Additionally, with gold investment, you have the option to find the best gold loan from reputed financial institutions and take a loan against your gold investment.

What is a Fixed Deposit?

Fixed Deposit or FD is a traditional form of investment where you deposit your money for a tenure of your choice at a fixed interest rate. Once the FD matures, you can get your money back with high interest.

FDs offer a higher return on investment compared to regular savings accounts. It could be a great investment option for beginners with a low appetite for risk as they offer assured returns regardless of market fluctuations. You can open an FD at a government bank or any NBFC.

Fixed Deposit (FD) Vs. Gold: Key Differences

Risk Involved

As mentioned earlier, both gold and fixed deposits are safe and low-risk investment options. Although gold can fluctuate in the short run, you almost always get high returns in the long haul. Gold can be a good investment option as it has always served as a hedge against inflation and has prevented major currencies from losing their value.

Compared to gold, FD interest rate returns are always assured and remain unaffected by external fluctuations. However, the return you get will depend entirely on the tenure you choose; a longer tenure results in higher returns.

Rate of Return

In FDs, you get a fixed interest rate, set by the bank at the time of account opening. On the other hand, the returns on gold investments can fluctuate based on market conditions, but they have the potential to outperform the fixed interest rates offered by FDs.

Liquidity

Liquidity is the ease at which an asset can be converted into cash. When it comes to ease of liquidity, gold is considered a preferred option amongst investors. However, although gold offers excellent liquidity, the return depends highly on the market scenario.

For FDs, the liquidity depends entirely on the bank you have chosen and its policies. Some banks charge a penalty if you liquidate your FD before it matures. To ensure you don't get charged, try choosing a bank that offers penalty-free exit on FDs.

Loan Against Investment

Both Gold and FD investments offer loans of up to 80% of their value. One can easily get a loan against gold or FD from a government bank or NBFC at a lower interest rate than that of personal loans.

Income Tax

The return on gold investments falls under Capital Gain, which means you can avail of indexation benefits on it. On the other hand, returns on FD deposits are described as income earned from “other sources” and are taxed as per current income tax rates.

Suggested Read: Why You Should File Your Income Tax Return (Itr)?

Income Generation

Gold is not designed to generate income, but rather is an asset that can generate wealth over time and act as a hedge against inflation. Whereas, a fixed deposit can get you income on a periodic basis if you opt for periodic payouts of returns.

Conclusion

Ultimately, both gold and fixed deposits are great investment options, and the best one for you will depend entirely on your financial goals, risk tolerance, and overall investment strategy. One should go for gold investment if they want to diversify their portfolio, are comfortable with short-term fluctuations, and don't need regular income on investment. On the other hand, an FD is perfect for those who prefer guaranteed returns, need regular income on investment, and have short to medium-term financial goals.

If you are someone looking to take a gold loan against your gold investment, consider Muthoot Finance. Being a reputable NBFC, we offer the best gold loan at competitive rates, easy documentation and eligibility, and flexible repayment options.