Should I invest in fixed deposit (FD) or invest in SIP?
A Systematic Equity Investment Scheme is where an individual invests a fixed sum of money periodically over a long period of time to reap the benefits of the average cost of the rupee. Here the customer benefits from all the market prices of the units he buys. For example: If “A” starts a SIP of Rs 5,000 per month, he will invest only Rs 5,000 no matter what the market price of the shares is, when the market price of the unit or share is high he will get lesser units or shares and when the market price is low you will get more units or shares but 5000 rupees will be fixed. This procedure helps the client to obtain better returns in the long run and also helps the client to earn more money by compounding.
On the other hand, people think that fixed deposits are a safer bet… of course they are, you get your fixed returns, your money is safe in the bank, you even have the peace of mind that you will get a 9% return percent. . Doesn’t seem like anything bad now, does it…? But have you considered the taxes and inflation that bank salesmen conveniently leave out? That’s the biggest catch…because after taxes and inflation, your money depreciates every year. Let us analyze these numbers properly below.
For example, start an FD of Rs 1000
Principal amount: 1000
Return (+) 9%*
totals: 1090
Tax (on profit, i.e. 90) (-) 30%*
OS now total: 1063
Inflation (-) 5.41%* that is (57.5)
On hand: 1005
Thus, he earns a return of 5 rupees in 1000 each year.
Let’s compare this to Equity SIP
Principal amount: 1000
Return (+) 17%*
totals: 1170
Tax free: 1170
Inflation (-) 5.41% that is (63.30)
On hand: 1106
*Percentage values as of December 2015
So as you can see there is a return of just Rs 5 on the FD compared to 106 on the stock markets. It is not as unreal as it seems. It is true. Since its inception, Sensex has returned 17% per year on average and other stock portfolios have returned even more than that. According to these calculations there is a guaranteed loss if you invest money in an FD for a long period of time and that completely changes its purpose of being risk-free.
Have you ever thought about what the bank does with the money provided by fixed-term deposits? I suppose not. They invest their fixed deposit money in the stock market and make huge profits. This is why so many banks are called “institutional clients” and the same goes for insurance companies. This is exactly how they can give you returns that are much less than what they are actually making. You are basically giving them money to make money. Therefore, in the long term, you will have a big loss if you “invest” in fixed-term deposits.
On the contrary, if there is an urgent need for funds by a person in a time horizon of 2 years, then he should not invest that money in the stock markets, since the stock market offers the desired returns only in the long term, it is say, 5-10 years. . Therefore, when there is a need for money for an urgent goal, the money must be deposited for a fixed term. And if there is no urgent money requirement and you are saving money for the purpose of investing and earning returns, starting an SIP is the best and safest thing to do in the long run. Not only will it help you save, but it will also give you a nice tax-free return.