Gold vs fixed deposits (FDs): Which is a better investment option for you

New Delhi: Saving and investment is a long term process. One needs to be regular and consistent with his or her contribution in order to build a financial portfolio. According to experts, the portfolio should have an ideal mix of different financial products. While deciding the assets, one should factor in the volatility risk, lock-in rules, taxation, etc.

It may be noted that investment decisions should align with your financial goals. One should consider risk appetite and time frame before making any investment. However, people prefer fixed deposits (FDs) when it comes to saving for the future. The reason behind this is that FDs offer assured returns despite volatility in the bond market. Senior citizens also find it a safe mode of investment so that they can get a guranteed income after retirement. Another common investment among people is in gold. They not only use it the form of jewelry but also use it during the time of financial emergencies.

Both FDs and gold have their own pros and cons when it comes to investing. For short-term goals like child’s primary school education or middle-school education, fixed deposits might be an ideal choice because they offer guaranteed returns and the interest rate is fixed for an entire term. The returns on FD are completely taxable which do not make them the best investment instrument for long-term financial goals. There are Tax-saver FDs as well which have a lock-in period of 5 years. One can claim a tax rebate to the limit of Rs 1.5 lakh per year under section 80C of the Income Tax Act.

Fixed deposits are risk-free in nature, provides faster convertibility as compared to equity shares, fixed rate of return and the interest amount withdrawal can be made on a periodic basis. It may be noted that a five-year FD for tax-saving purpose, will not allow premature withdrawal before completion of five-year tenure.

Gold is considered as the most liquid assets among equities, bonds, derivatives, bank term deposits, post office savings, insurance schemes, etc. It may be noted that a person can convert most of the standard forms of gold into cash quite easily. Another important thing is gold is an ideal investment option for risk-averse investors who are more inclined towards safeguarding the money. At the time of any unsolicited or unplanned requirement, a person can rely upon gold without disturbing the entire portfolio to get cash.

The disadvantages associated with gold from an investment perspective is that you may able to sell it easily, but chances of incurring losses are higher since the gold prices fluctuate a lot in the short-term period. Also, it doesn’t generate any income. If you buy gold jewelry, you may not be able to sell it in small portions.

“In my opinion, neither gold nor FD is an ideal product for investment. But if you want to invest your money for earning regular income fixed deposit with banks or companies can fulfill your requirements if you opt for periodic payments of interest instead of cumulative options. Gold does not give you regular returns so to that extent it is unsuitable for investors who seek regular income,” says Balwant Jain, tax and investment expert.

“Investments in gold can be made for strategic reasons like diversification of your portfolio as it helps you diversify your portfolio. It can be bought for the purpose of meeting your social requirements at the time of marriage in your family be it of your son or daughter. It has helped guard against inflation historically,” Jain further said

“As far as taxation is concerned, interest on fixed deposits is treated as your regular income and thus taxed at regular rates applicable to you. But gold, if held for 36 months or more, become a long term capital asset and the profits are taxed at the time of sale of gold. The profits are calculated by indexing your cost with the cost inflation index and taxed at a rate of 20 per cent. Therefore, from a taxation point of view gold is a tax-friendly product. The average returns have generally been the same in both the products over a long period of time,” Jain said.
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