Hi, Stocks and Fixed Deposits are the two most preferable investment vehicles in which the investors invest their hard-earned money.

Hi, Stocks and Fixed Deposits are the two most preferable investment vehicles in which the investors invest their hard-earned money. But if you a new investor and you are getting confused about which investment vehicle you should invest in, whether Fixed Deposits or Stocks, then in this video you can look at the differences between them. But before jumping into the differences between

Fixed Deposits and Stocks, let us understand the basics of these investment vehicles: What is a Fixed Deposit? A Fixed Deposit is an investment plan in which you have to invest a certain amount of funds for which you will receive a fixed interest for a specific period. Fixed Deposit can be cumulative and non-cumulative. The Cumulative Fixed Deposit compounds the interest annually, whereas a non-cumulative fixed deposit gives interest at regular intervals, say monthly, quarterly, or yearly. In this type of investment vehicle, the money is locked in for a specific period of time.

What are Stocks? Stocks are the ownership of shares in a company. But before investing in stocks, you should have enough knowledge about analyzing the price movement, as the prices of stocks are driven by the demand and supply of the same. Even if you possess enough knowledge about analyzing the stocks, fundamentally or technically, returns are always not assured. So, for a beginner, it is advisable to invest only a small amount of your money in it. Investment in this tool is more suited for individuals having high-risk appetite. Your risk appetite can be referred to as how much risk of financial loss you can take.

If you have a low-risk appetite, then it is better to invest only a small amount in the stock market. After knowing about fixed deposit and stocks, let us discuss the differences between these two investment tools:

First difference is Risk: Investment in fixed deposits is considered risk-free as there is a stable rate of return with no fluctuation in the interest rate. Whereas investing in stocks is quite risky as the prices keep fluctuating due to the sentiments of the stock market participants.

Next is in terms of Returns: The more risk you are willing to take, the more returns you get on your investments. Thus, when investing in stocks, the rate of return is higher compared to the returns received from investing in fixed deposits; but the risk is also relatively higher.

Next is Liquidity: The funds invested in fixed deposits have a locked in period for a fixed period of time. Thus, the invested funds cannot be taken out during that duration, whereas stocks can be easily bought and sold during a trading session.

Next is the effect of inflation: It is observed that when the inflation rate is high, fixed deposits don’t pay better returns when compared to investing in equity.

And the last one is with respect to Tax: By investing in fixed deposits, you can reduce your taxable income. But, when investing in equity, you have to pay tax for both short term and long-term gains. Fixed deposits and Stocks are different asset classes for investment, in terms of risk and return. While fixed deposits are relatively a more secured way of investment with minimal risk and fixed return, stocks are on the high-risk side, and are suitable for those investors who are ready to get high returns with high risk factor in this kind of investment. Whichever form of investment you may choose to invest in, you must always keep your risk appetite under consideration.