Fixed Deposit vs. Stock Market: Where Should You Invest

Anyone with an intention to build wealth and gain financial stability surely considers investment at a point in their life. You cannot gain financial stability or build wealth if you live paycheck-to-paycheck and let your extra funds relax and chill in your savings account. You must make your money work for you if you want to retire peacefully. And, the best way to make your money work for you is to invest them.

But, where should you invest your money? What’s the best option?

Well, there are dozens of ways to invest your money, each with their pros and cons. In this write-up, we are discussing two of the most popular investment options – Fixed Deposit and the Stock Market. This article will help you make the right decision and ‘rise money wise’!

How Much Money Do You Need to Invest?

No discussion of investment can begin without savings. If you don’t have savings you cannot invest – be it in a fixed deposit or stock market. And, this is the reason many people live with the misconception that investment is for the rich. That’s wrong. The reality is that the ‘investment makes you rich’.

So, if you are not yet saving money for your future, start doing it now. And, start an investment as soon as you can because the sooner you start the better would be your financial position.

Now, let’s proceed to the main question – how much money do you need as saving to start investing. The best part about this answer is that you do not need to be rich or have lots of savings to start investing in any of the given options. You can start a bank fixed deposit from as low as USD 20 or Rs. 1,000. Not every bank offers the facility of FD at the same minimum amount. Please check with you bank and start saving.

Differences between Fixed Deposit and Stock Market Investment

Before we get into a detailed explanation, let us first see the basic differences between fixed deposit and stock market investment in tabular form.

Fixed Deposit vs. Stock Market Investment

#	Basis of Differences	Fixed Deposit	Stock Market Investment
1.	Return on Investment (RoI)	Returns on fixed deposits are ‘fixed’ and you know it beforehand.	Returns from the stock market are not fixed as they are based on market variables. They may generate a lesser or much higher return as compared to FDs.
2.	Tenure of Investment	The tenure of your investment in fixed deposits is always pre-decided. Once your tenure is over you can withdraw your money or roll over the investment again for that period at the pre-decided rate of interest. If you need to withdraw your money before maturity, you may be charged a penalty for the same.	There’s no fixed tenure of investment in the stock market. You can pull out your investment anytime at your discretion.
3.	Risk Involved	Fixed deposits are a safe investment as they generate a fixed return and your capital is always safe.	The stock market is always volatile and risky. You may get much higher returns on your investment but you may also lose your capital.
4.	Investment Options Available	In FDs, you can choose between short, medium, and long-term investments depending on the time you can leave your money for growing.	Apart from the time frame stock market gives you lots of other investment/ trading options. The stock market has equities, derivatives, and commodities in which you can do various categories of trading and investment. It’s vast and complex.
5.	Periodic Returns	In FDs, you can opt for monthly, quarterly, half-yearly, or annual returns on your investment.	In the stock market, you won’t have an option for periodic returns. You get the profit when you sell your holdings at profit.
6.	Active Participation	When opting to invest in fixed deposits, you don’t need to do anything actively as everything is pre-decided.	The stock market needs you to be a little active even when you plan to invest and leave your money for a long period. And, if you want to earn profits from the stock market in short term you need to be more active and vigilant.

Fixed Deposits: Critical Appraisal

Being, one of the safest ways to invest, fixed deposits come with many advantages. This is especially true when you are a beginner in savings and investments. Market fluctuation does not impact your fixed investment and hence your capital remains safe. You get a fixed return on your investment that you can take periodically or at maturity. Typically the tenure of bank FDs can range from 7 days to 10 years. Some banks also provide loans against your FD.

Despite all these benefits like stability, low risk, and fixed returns, FDs fail to be the favorite investment option for the experts. The basic reason for this is the low returns on these investments. They are undoubtedly better than keeping your money in a savings account but fixed deposits cannot create wealth for you.

When we see the rate of return on FDs, normally we fail to compare it with the current rate of inflation. If your FD promises to bring you 6% ROI at the end of the year and the current rate of inflation in your country is 6.95% you will effectively lose 0.95% of your purchasing power even when the figure is in your bank account seems bigger than today.

Stock Market: Critical Appraisal

The stock market is volatile and is affected by all economic and major political decisions worldwide. You do not have the luxury of a fixed return like FDs but the return in the stock market can be much higher as compared to that fixed return. The best thing about the stock market is that it adjusts itself against the rate of inflation. So, if you choose the right stock at the right time, your investment would not be grazed away by inflation. This is the reason long-term investments in the stock market are considered a safer bet.

The stock market demands some active participation and understanding of the market. If you fulfill the demand you can create wealth and an extra stream of income from the stock market. But, you can never put your guard down when you are in the market.

FD or Shares, Which One is the Best Choice for You?

The choice between FD and the stock market can be made on three strong parameters –

• Your risk tolerance
• Your investment goals
• The amount you have for investment

If you just need to keep your money safe there’s nothing better than fixed deposits but if you want your money to grow and beat inflation you have to enter in share market. If you can take a little risk, you should enter the stock market with small investments.

RiseMoneyWise’s Take on This Topic: When you are just starting, you need to have some safe money at your disposal. So, you can start with FDs. But, once you are ready to take a little risk you should take a leap and enter the stock market, be it for investment or trading. FD is for stability stock market is for growth. Stability and growth both are important for your life and finances. Why choose one when you can have both?