Stocks and fixed deposits are two traditional investment options in the market where usually many investors put their money for getting returns. Here, we will try to understand, where should you invest? In stocks or in fixed Deposits. First, we understand stocks. A stock is a type of investment that represents an ownership share in a company. A stockholder usually makes money in 2 ways:
1. Capital appreciation and
First, we understand what is Capital Appreciation? Capital appreciation means the difference between the purchase price and the selling price of an investment (Shares), that difference is the investor’s profit.
For example, if an investor buys a stock for Rs 100 per share and the stock price rises to Rs 120, the investor has earned Rs 20 in capital appreciation.
Now we understand what is a dividend? When a company earns profit, it is able to distribute some part of its profit to its shareholders, that part of the profit is called the dividend. The distribution of dividends totally depends on the company’s dividend distribution policy, Payment of dividends is not mandatory for every corporation.
Now we talk about Fixed Deposit (FD), which is an investment option where people invest a certain sum of money for a fixed period at a predetermined rate of interest. The rate of interest varies from one financial institution to another. Fixed deposits are available for different periods, ranging from very short-term tenures of 7-14 days to long tenures of 10 years. For example, if you choose to invest Rs 100000 for 5 years at an interest rate of 6% per annum, you will get an interest of Rs 34,686 a cumulative FD would have a maturity value of Rs 1, 34,686.
Through this blog, I just want to explain that, before investing anywhere you have to keep 3 things in your mind
1. Safety of Investment (Risk Involved)
In investment of stocks, which I call (Hare of a race), there are chances of higher returns with high liquidity but at a higher risk.
And In the investment of Fixed Deposit, which I call the (Tortoise of a race) there are chances of Lower returns with low liquidity but at a lower risk.
I will not tell you you should go for stocks or for FD, both the options have their own pros and cons, it depends on which aspect of investment you give more priority i.e. Safety, Return, or Liquidity. Now, it is your decision which option you want to select for your investment. I hope I shared some useful for you.
Rahul Kumar Vishwakarma
Sage School of Commerce