Gold vs FD: which is better for investment

If risk free investment is your top priority, gold and FD are among the best options. However, there are a few points of comparison that you must know before deciding on the right investment vehicle that will suit your situation and needs. To start with, you must approach the entire idea with the understanding that investments made in gold is bound to fluctuate constantly while fixed deposits guarantee predefined returns. Here are the other points of comparison while understanding gold or FD which is better investment.

Market nature and safety

Gold market is seen under constant flux as it is an internationally traded commodity. Several aspects like supply of gold, import, price of the US dollar, international trade relations and other aspects can impact the gold prices. Though there are chances that the value of gold will gain, a fall noticed in the market can mean that your investment in gold is struck. Whereas the returns in case of FD is independent of the market influence. You can also compare between the interests rates offered by different banks and choose the right bank to deposit your money.

Rate of return

Gold investment always assures a reasonable rate of return. The government in India is at present taking steps to control gold inflation. Due to this, the rates of gold has significantly come down. In the past, gold investment was surely a good option since this investment gave inflation-beating results. On the darker side, there is an appreciation noticed in the gold prices due to the devaluation of the paper currency. So, the return is most times nominal in case of investing in gold. The one down side to fixed deposit is that the returns are locked for the term of investment. Irrespective of the invested amount, the returns are guaranteed in case of FD.

Flexibility of investment term

Talking of gold investment, the option in front of you include gold ETFs, gold equity or gold bullion. The duration of investment will depend on the type of investment chosen. In case of FD also you can think of flexible terms. You can choose between 7 days to 10 years as per your requirements. The flexibility of the investment term will depend on the bank’s terms. Usually short term fixed deposits are ideal for beating inflation.

Liquidity

If you want to invest in gold, you can think of a range of options including mutual fund, bullion and equity. Hence there is a great degree of liquidity you can think of. Physical gold can be sold quickly, it can result in a loss. The returns will always depend on the market conditions. In case of fixed deposits, the liquidity will depend on the terms of financial institution. Premature withdrawals can invite penalties.

Generation of income

Fixed deposits can bring you another source of income. You will be able to choose the frequency of interest you will want to receive. It is also possible to opt for a cumulative fixed deposit in which the interest is reinvested for earning better returns. Whereas, gold will not generate any income. It is just an asset that will perform depending on the market conditions and some external factors. Gold is not productive on its own.

How to decide between gold and FD for investing?

Consider the above factors and check if your situation and expectation will suit the investment option that you will choose and make the right decision accordingly.