Should you Invest in Gold or Fixed Deposits?


Both gold and FDs have been traditional investment options in India that have remained popular across generations. As you build or rebalance your investment portfolio, you may come across both and try to evaluate them based on your needs and goals.

While both offer good returns, consider factors like maturity tenor, risk and liquidity. To help you decide on the better investment, here are some areas of difference between gold and FDs.

  1. Market influence and safety:

The market for gold constantly fluctuates since gold is an internationally traded commodity. This means that import and supply, the US dollar and international trade relations impact its price. While there are numerous opportunities for you to gain, a slump in the market could also cause you to have cash stuck in gold bullions.

FDs, on the other hand, provide you returns that are completely independent from any market influence. Company FDs also have safety ratings so that you can compare various options and choose the ones that are highly creditworthy. For example, Bajaj Finance’s FD has ICRA’s MAAA (stable) rating and CRISIL’s FAAA/Stable rating so you can multiply your earnings safely.

  1. Rate of return:

Gold investment can offer you a good rate of return ranging from 7% 14% or more. However, the imports of gold soaring in India over the years from 2012 to 2017, lead to a gold inflation on a massive scale. Hence, the government took measures to reduce this inflation and as a result, the prices of gold have fallen considerably, making it difficult to receive the same kind of returns as before.

Fixed deposits on the other hand continue to provide stable returns that are locked-in for the duration of your investment when you start your FD. For example, you can look to getting an interest starting from 7.85% from a Bajaj Finance FD and 8.20% on its Senior Citizen FD.

  1. Flexibility of tenor:

As a gold investor, you can invest in Gold ELSS mutual funds, gold equity or even gold bullion. The tenors of these depend on the investment you select. Gold equity and bullion feature flexible tenors. You have the provision to purchase bullions or shares and sell them over the short term or long term. Fixed deposits too feature flexible tenors. You have the provision to select a long or short tenor depending on your requirements.

However, the flexibility of this tenor would depend on the terms of your lender. Generally, a short-term FD is better as it helps beat inflation but experts recommend that you invest in gold for the long term, though there are exceptions to this. In this regard, both offer you equal opportunity.

  1. Liquidity:

Since gold enables you to pursue a range of investments like mutual funds, equity and bullion, it offers excellent liquidity. For example, if the prices of gold have risen, you could easily sell the bullion or the shares. The rate however, depends on current market conditions. For FDs, the liquidity depends on the terms of your lender. While some lenders make premature withdrawals easy, others could have a longer process. Either way, you stand to lose out on interest earnings and must pay a penalty too.

  1. Ability to access more funds:

Lenders generally have stringent policies when it comes to giving loans against gold jewellery and bullion, but you can get up to 60% of the gold’s value. Getting a loan against your FD is easier and offers up to 70% of the FD’s value.

These are some common areas of difference between gold and FD investments, and you can choose one based on your risk appetite and need for liquidity.

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