FD V Mutual Funds V Stocks v Real Estate
Bank Deposits have been the mainstay of a typical household savings.
Deposits account for lion’s share of our savings. The benefits include easy liquidity and simple to understand nomenclature.
You book FD @ certain fixed Rate of Interest and on maturity get a fixed amount.
The FD can be easily liquidated in case of requirement of funds @ a nominal penalty (usually 1 % ).
You could also avail of a loan/Overdraft facility instead of liquidating the FD.
However, in the event of increase in inflation the deposits fail to build wealth and the real return could be paltry and misleading.
Also, the interest earned in Bank deposits and savings accounts is taxable and tax has to filed on the interest earned during a FY in accordance with one’s tax slab.
Many people do not know that they are liable to pay tax on the interest earned from their deposits and savings accounts.
Why Mutual Funds over Bank Deposits / Property?
Mutual Fund have given very good returns over a long period of time.
Equity, as an investment class has given the highest return in the last 25
years across asset classes . Moreover, the return is completely Tax Exempt(if held for 1 year or more) .
Entire proceeds will be Tax Free in the hands of the Investor.
This, would not have been possible in case of bank deposits and property investment.
Long term capital gains are taxable in case of fixed deposits and property investments.