Gold pips fixed deposits in returns, but latter offers less risk

CHENNAI: If you are in a position where wyou are looking to invest in low-risk investments, you are most often confronted by the choice of whether to make your investments in gold, or in bank fixed deposits, or term deposits as they are also called. But which one should one actually chose for the current situation is a question that plagues most, so here are a few points to keep in mind while taking such a decision. 

Returns

Any investment is judged good or bad based on returns and for a low-risk option, Gold has given an almost 100 per cent return over the past 10 years while FD interest rates are currently at 5-6 per cent annually in most leading banks in India.

Due to high liquidity and expectations of higher inflation, gold is expected to continue to give good returns. Fixed deposits, on the other hand, provide fixed returns which are set by the bank during the opening of the account. However, unlike gold, the best thing about FDs is that these returns are guaranteed and, are hence, safer. 

Liquidity

The biggest advantage that gold investments have, however, is liquidity. Physical gold can be bought and sold at any establishment dealing in the precious metal with ease. While you can liquidate your fixed deposit before the maturity date, most institutions levy a penal interest on such withdrawals.

If you think you might be in need of money before the FD matures, look for companies that offer a penalty-free exit while investing.  

Income generation

Fixed deposits can also end up being another source of income for you and one can choose the frequency of interest income one wishes to receive. Alternatively, you can also opt for a cumulative fixed deposit in which the interest is reinvested to earn better returns. On the other hand, gold is an asset whose performance depends on external factors. It is not productive on its own.

Taxation

Returns from gold will be categorized as capital gains, but interest from FDs is taxed at the existing slab rates.

Safety

The gold market can be volatile as it is an internationally traded commodity. FDs are free from such considerations.