Why investing in stocks is better than fixed deposit?
Stocks are shares of ownership in a company that trade on the stock market. Fixed deposit (FD) is a type of bank account that offers a fixed interest rate for a fixed period of time. Both stocks and FDs have their own advantages and disadvantages, depending on your financial goals, risk appetite, and return expectations.
Here are some reasons why investing in stocks may be better than fixed deposit:
Higher return potential - Stocks have the potential to deliver higher returns than FDs over the long term, as they reflect the growth and profitability of the underlying businesses. Historically, stocks have outperformed FDs in terms of annualized returns, especially in periods of high inflation and low interest rates.
Protection against inflation. - Stocks can help you preserve and increase your purchasing power, as they tend to rise in value along with the general price level. FDs, on the other hand, may not be able to beat inflation, as the interest rate offered by banks is usually lower than the inflation rate. This means that your money in FDs may lose its real value over time.
Access to global markets - Stocks allow you to invest in companies across different sectors, regions, and countries, giving you exposure to diverse and emerging opportunities. FDs are limited to the domestic market, and may not capture the growth potential of other economies.
No fixed tenure - Stocks are highly liquid, meaning that you can buy and sell them anytime, without any penalty or restriction. FDs have a fixed maturity date, ranging from a few days to 10 years, and you may have to pay a penalty if you withdraw your money before the maturity dates.
Tax benefits - Stocks may offer some tax benefits, such as lower capital gains tax, dividend distribution tax, and indexation benefit, depending on the holding period and the type of stock. FDs are fully taxable, and the interest income is added to your total income and taxed at your slab rate.
These are some of the reasons why investing in stocks may be better than fixed deposit, but there are many more factors to consider. You should also be aware of the risks and challenges of investing in stocks, such as market volatility, company-specific issues, regulatory changes, and behavioral biases. You should also seek professional advice from financial planners, accountants, lawyers, and mentors, who can help you assess your situation and plan accordingly. Investing in stocks is not a one-size-fits-all solution, and it requires careful research, analysis, and discipline.