According to experts, an investment plan should be a blend of low risk and high-risk investments. Although high-risk tools ensure higher returns, safety is more elevated in low-risk instruments. The thumb rule of investing depends on the risk appetite of the investors and their financial goals.
Devised below is a comparison drawn between two prominent investments of fixed deposits and real estate.
Fixed Deposits and Real Estate: A Glance
- Fixed Deposits
Fixed deposits have been an attractive investment, especially among conservative investors who necessitate on principal amount security. With around 4% to 8% FD rates in India, it is a low-risk instrument with guaranteed returns. Specific financial platforms like PNB Housing finance offer upto 8.20% fixed deposit rates. Senior citizens are eligible for 0.25% higher. Besides being risk-free, FDs are highly liquefiable through premature withdrawal. Investors can also avail a loan against FD to mitigate their immediate financial crunches. PNB Housing Finance, for example, enables investors to avail upto 75% of the deposit amount for the loan. Also, the interest rates on these loans are less than regular loans.
- Real Estate
The real estate investment is an interest vested in an immovable item (land, residential, commercial or industrial properties). This high return investment is, however, highly dependent on the ongoing business cycle and stock market performance. Although it brings high income and diversifies the investment portfolio, it might require management expenses and cannot be easily liquified.
FD vs Real Estate
| Parameters | Fixed Deposits | Real Estate |
| Returns | The returns on fixed deposits are assured and independent of market performance. | Real estate can be prone to dramatic fluctuations from stagnancy to achieving because of its dependence on the economic climate. |
| Affordability & Profit | The fixed deposits can be opened with an amount as low as Rs.25,000. The deposits are made for a fixed rate of interest. Hence the profit is assured, though small compared to real estate. | The affordability of real estate property is highly dependent on local factors. The property at a burgeoning tier 1 city could be on a higher-end compared to a property with the same features in tier 2 or 3 cities.
Also, the profit on real estate is a consequence of the stock market performance. When the business cycle is favourable, high-value gains are ensured.
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| Additional expense | None | Maintenance charges, miscellaneous charges which include ownership titles, stamp duty etc.
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| Process and Transparency involved | Most of the financial platforms enable easy online processes for opening FD.
The lenders’ approval rating confirms its authenticity.
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Before investing in real estate, investors should conduct comprehensive research regarding the property value, legal implications to ensure the safety of the invested amount. In spite of the effort, it could contain unverified asymmetrical information. |
Final thoughts
As discussed in the above points, real estate and fixed deposit investments are two different tools designed to cater to a variable set of investors. Investors should arrive at an informed decision after contemplating and comparing the factors of risk and flexibility with financial goals.
