Fixed Deposits Vs Equity Investments

We have often seen people curious what to go for FD’s or Equity Investment ??????

They turn the world upside down to know what they should go for. But now a day’s people are getting more attracted towards equity. Thanks to those entire brilliant ad campaigning’s done by fund houses pitching there products to all of you.

Let’s try and understand what could be better for the people.

What is a Fixed Deposit?
A fixed-income debt security issued by banks. A Fixed Deposit is like loaning the bank your money and in return they pay you interest which is currently between 7.5-8% p.a.
At this interest rates your money will double approx in 9 years. Too less too late? Read on

Drawbacks of FD’s:
The most unusual characteristic of a fixed deposit is that the funds cannot be withdrawn for a specified period of time which is usually 3 years since deposit for any reason.
Changes in the going interest rate may also rise to a point above and beyond the interest rate applied to existing deposits done with the banks. This means account holders are actually earning less interest with fixed deposits than with other types of products.

Mutual Funds

Now let’s understand what Mutual Funds can do with your one time investment and who they are:
Dalal Street prefers people thinking that what they do with your money is some rocket science and you are not the right person may be to take your own financial decision so that they keep earning fat commissions for themselves you being entrusting them your hard earned money.
With stock market bouncing off from lows and due to higher interest seen in Equity the companies started focusing on ULIP’s.

Unit Linked Insurance Plan - is a financial product that offers you life insurance as well as an investment like a mutual fund. Part of the premium you pay goes towards the sum assured amount you get in a life insurance policy and the balance will be invested in whichever investments you desire - equity fixed-return or a mixture of both. ULIP was actually first time introduced in 1960s and is a famous financial product around the world today.
The biggest misconception about Ulips today is that they are entirely linked to equity markets. The fact is that within an Ulip policy various fund options exist with varying exposure to equity and debt such as 100% equity fund 100% debt fund and balanced fund.

Drawbacks of ULIP’s:
They will charge you with allocation mortality charges administration charges and fund management charges. Besides there are certain other miscellaneous charges such as surrender charges levied in case of premature exit fund switching charges in case of number of switches exceeds the free switches allowed per year and top up charges.
All this is deducted from the premium you deposit with them and it carries a locking period of 3 years and if you discontinue you may lose a lot because of these charges.

Now comes the most frequent question, what should one do?
When taking money and investment related decisions its always better to take informed ones rather they relying on hearsay and rumors which keeps going around.
Rest depends on who you are and what you want? If you are a novice then you may start considering Mutual Fund schemes in growth related funds or so rather than the traditional FD’s.

If you are not a beginner and know the basics about stock market then start putting in markets directly to equity via SIP and then keep learning about the Investing world. That will certainly help you achieve higher returns in the years to come when compared to Fixed Deposits or ULIP.
Focus on lifetime investing because the longer you invest the better will be your returns.