Wealth building is a systematic process. And for this process to yield maximum results it is mandatory to make right investments. But how does one make the right investment? The plethora of investment options available in the market could be confusing.
The answer lies in evaluating risk and returns of an investment.
Should you invest in Mutual funds or stocks?
In the last few years, the stock market has wooed investors courtesy of its sterling returns. In the last one and a half year itself, the S&P BSE index gained over 9,000 points. However, we saw a big fall in March this year, which eroded much of the capital of short-term investors. Mutual funds and stocks do offer higher returns, but they come with the risk of eroding the principal amount as well.
Mutual funds should be considered as a long-term investment instrument. Choose mutual funds and stocks at your own risk.
Fixed Deposits (FDs) have been the traditional favourites of Indian investors. According to various surveys conducted by RBI and SEBI over a period, 95% of the Indians still prefer to invest in bank deposits, such as savings account, recurring deposits, and RDs. RDs offer guaranteed returns determined at the time of investment and depending on the period you are going to stay invested which can start from seven days and go up to 10 years. Bajaj Finance Fixed Deposit offers an interest rate of 7.85%, which can go up to 8.2% for senior citizens. You can use the online Fixed Deposit Interest Calculator to know how much you can gain from your FD.
So if you are looking for a safe investment with high returns, FDs are the way to go. However, if you liquidate your FDs prematurely, you would have to pay a penalty. Some financial institutions though offer a loan against the FD as a collateral. If you’re looking for faster access to money, pre-approved offers by Bajaj Finserv help you save time and you can avail your money in just 3 clicks
Another good option for safe and high returns could be debt funds, which could fetch you 7-8% returns in a year, which are at par with the returns FDs give you. However, unlike FDs, debt funds do not guarantee returns. Having said that, debt funds score over FDs when it comes to taxes on the gains. The interest earned on debt funds is treated as a short-term gain, which is taxed a lower rate as compared to FDs if you stay invested for at least three years.
If you are looking for short-term investment, mutual funds and stocks should not be flattening. Although this investment instrument offers handsome returns, it comes with a huge risk factor.
You should choose stocks for investing your wealth only when you are ready for the risk. If safety and security of your principal amount is your priority then you should stay away from stocks.
Fixed maturity plans (FMPs)
FMPs are closed-end debt mutual funds and are very similar to FDs and have a predetermined maturity period, which usually is for five years. Investment in FMPs is available only during the New Fund Offer (NFO) period and is not available for subscription on a continuous basis. FMPs are pretty similar to FDs, as both require you to stay invested for a predetermined period. However, both are different, as FDs guarantee a certain return, FMPs offer only an indicative return.
FMPs are becoming popular amongst investors who like to play safe, for the fact that returns usually are higher than FDs. FMPs usually invest in debt instruments like corporate bonds, bank fixed deposits, certificate of deposits (CDs), commercial papers and money market instruments.
Also Check: Senior Citizen FD by Bajaj Finance