Which is best? Fixed deposit or Mutual Funds?
Hello Everyone! Today we shall discuss which among the Fixed deposit (FD) and Mutual Funds(MF) is better. I will provide you with the check points to pick it in a fashioned way if you are in dilemma.
No one would want to lose their hard earned money. People would think about keeping it rather than investing and then losing it. But, with the inflation in the market, your purchasing power parity (PPP) would only decrease if you are planning to keep the money as is.
What is PPP?
The power of the currency getting decreased year by year, this is common in normal economic conditions as well. For eg: If you are buying 10 pens each worth 10/- for 100 rupees. You may not be able to buy the same number of pens next year when the price increases to 11/- each. So, if you are keeping money with you without planning on investment, then you are degrowing. It is as simple as this that it is BEST to invest the money that you have.
Once you have decided to invest, the next question is where? Should i go for FDs, MFs, Bonds, Debentures or anything else. If you are a beginner and do not know where to invest, then the first thing that would help you narrow it down is your age. Lets say you are between 20-40, then most of your money should go in Stocks, MFs or if you are between 40-60, only the half of the savings should go to stocks and MFs, and the rest to FDs, bonds. If you are above 60, i highly recommend you to invest only in FDs, Bonds and Debentures. There are several types of bonds and debentures, which will be explained later on.
The second point that should come in your mind is the long term goal. Are you planning on an early retirement? Are you planning on some long term purchase? Or are you just securing your retirement. Note down the answer for these, and this would decide the aggressiveness of the investment amount.
Mutual Funds:
There are hundreds of mutual funds in the investment market. If you do not have any idea about any of these funds, then you should start researching the basics of it. You may not need to go in detail, but you should be able to decide where to investment, per se the sector. Power, real estate, gold, IT, government companies etc. It is always recommended to diversify the MF portfolio. A portion of the MF investment should also go in debt market (gold funds). Mutual funds are directly connected with share market. When the market grows, so does your MF portfolio and otherwise. So, anything could happen anyday. There probably could be another lockdown in future as well due to some unknown reasons, but you should be ready then. So, it is always recommended to diversify. Do not invest only in IT, health, Real estate, gold. Rather divide it further.
Fixed Deposit.
As quoted earlier, if you are above 60 years of age, then you should go with FD and Bonds which would give you fixed returns on the investment. One of the points to consider here is to not be greedy. I have seen people investing in some co-operative societies, chits for greater returns. I highly recommend people personally to not risk the money. Though co-operative societies offer higher rate of interest, they also have higher risk of bankruptcy. So, are the chits. So, it is better to go for public sector banks such as State Bank of India, Indian Bank, Canara Bank etc.
Stock Market:
Stock market can make you really rich and can also bring you down to street. I personally have seen people losing all their money overnight and cry. This is the prime reason i am placing this thing at the bottom. If you have no idea in it, but planning on learning, then go with some beginners video on youtube. Observe the market, note down the number of shares if you want to buy in notebook and track it.
For eg: Start with the virtual 10000 rupees. Lets say you are buying 10 shares of ITC at 200 on 1st April 20xx, and then keep tracking. Start reading how to analyse the balance sheet and fundamentals. Only when you find yourself confident, then start slowly. DO NOT TOUCH FUTURE AND OPTIONS AT EARLIER STAGES. It will have put and call options that would really take some time to understand. Do not invest cause someone is making way too much of money in it. And for all those who are experts in playing options, just be safe 😉
Financial independency is what everyone look for. The only way for the success is to be consistent. Though it does matter how much you invest, it matters more of how long you would invest. Being consistent is equally important. Apart from these, an individual also should have a life insurance, term insurance covered for the self and family. Life is very uncertain after all, it is for us and to ours.
Decide a better term insurance based on the below points.
1. Riders required by you.
2. Claim rejection and claim settlement ratio
3. Term amount
4. Total AUM.
Tip: Always go for the amount that increases substantially in future. 1 crore after 50 years isn’t worth as much as it is now. So, there should an increase of amount at least once in every 5 years. Only then it would provide any justice. Do not buy it in hurry. A separate article will be written on this in a few days. Compare and decide accordingly.
To wrap up and to be on the same page, the only point of the article is to financially grow and to only grow. The pace of growth, the investment is all an individuality. We can also be the tortoise in the story, but let’s be consistent. Do not invest in FnO if you are beginner.
Together!!