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Five reasons equities trump FDs, gold, and real estate

24 Nov 2023

Introduction:

With many investment options, it can take time to pick the right one. Within the cultural context of India, gold and real estate, mainly residential or agricultural properties, have long been regarded as symbols of financial success. Fixed Deposits (FDs) also appeal highly for their low-risk profile and simplicity. However, in recent times, equities have emerged as a strong contender to these traditional choices. Each investment presents its own set of promises and challenges. But the paradigm shift to equities is worth nothing. Find out what makes equity better than FDs, gold, and real estate.

5 Reasons why equities are a better option than FDs, gold, and real estate

Liquidity and ease of transaction

Equities or stocks can be bought and sold on the stock exchange during business hours. You can trade them individually or through mutual funds. If you choose the latter, you also get increased simplicity of investing through Systematic Investment Plans (SIPs) or lump-sum transactions. Moreover, you can start investing with minimal value. SIPs can be as low as Rs 500, and direct equity, such as stocks, have no minimum investment amount. Equities have no lock-in periods except for the Equity Linked Savings Schemes (ELSS). So, you can buy or sell them at your convenience.

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In contrast, real estate investments involve a complex process with numerous formalities, such as legalities, registration, and deeds. They also require a considerable investment capital. Given the high value, it can be hard to find sellers, especially if you need immediate money. Fixed Deposits (FDs) offer a low initial investment but may pose withdrawal challenges due to predetermined maturity periods.

Gold can also be a problematic investment in terms of cost and capital requirements. Buying gold is relatively straightforward, but selling can be challenging. This is especially true with physical gold, which may depreciate due to making charges deducted by buyers.

Higher returns

Equities have consistently demonstrated a track record of delivering higher returns than FDs, gold, and real estate. The historical performance of equities makes them a more lucrative investment option, particularly over the long term. Equities can deliver returns outpacing inflation to ensure the purchasing power of your money is preserved.

No maintenance costs 

Equities do not require any maintenance. In contrast, real estate requires upkeep, such as renovation and repair. This can interfere with your overall returns. Gold, too, requires maintenance costs. Storing it can be challenging. Keeping it at home can pose the threat of theft, and getting a locker can be costly. Banks charge annual charges for safes. Some banks also ask you to maintain an FD for a minimum amount to open a locker. 

While FDs require minimal maintenance, their relatively lower rate of return and penalties for early withdrawals can make them a cumbersome option.

Tax benefits

ELSS mutual funds offer tax benefits under Section 80C of the Income Tax Act, 1961. They allow you to avail of a tax deduction of up to Rs 1.5 lakh annually. Furthermore, equities provide the opportunity to offset short-term capital gains against losses. This can offer additional tax-saving advantages.

In contrast, gold and real estate do not offer any such tax benefits. While FDs provide a tax deduction under Section 80C, you can only claim it in the case of a five-year FD.

Diversification

Equities offer more diversification than traditional investment options such as gold, real estate, and FDs. You can allocate capital across various sectors, industries, and geographical regions. You can invest in small, mid, and large-cap stocks and explore opportunities in different companies and market segments. This can help you mitigate the impact of poor performance in one sector or asset class on the overall portfolio.

On the other hand, gold investments are typically limited to physical metal or related financial instruments. However, they need more diversification available in the equity markets. Real estate investments are often tied to specific properties or locations. This makes it hard to diversify across different types of real estate assets. FDs, while considered a safe option, offer no diversification. They are confined to a fixed interest rate for a predetermined period.

To sum it up

Equities offer diverse investment options, tax advantages, and inflation-beating returns to help you with your goals. They can be the ideal option when compared to FDs, gold, and real estate.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

 

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