Gold vs FD: Which one has a lower risk

If a low-risk investment is your main aim then gold and fixed deposits are two very popular and great options for you. Even though most investors prefer stock markets for wealth creation, it has a huge risk attached to them. It is affected by a number of domestic and global factors and can also be very volatile at times. Mostly during such times of volatility investors prefer to move their funds to less risky options.

While both gold and fixed deposits provide great options for safe investments, there are a few points one must compare before deciding which one to opt for. To start with, the main point is that while gold is considered a safe haven during market volatilities, its prices fluctuate on a regular basis. However, fixed deposits give guaranteed predefined returns in a specific period of time but at a low-interest rate.

Let's take a deeper look into both these options for you:

Gold

Gold has been a popular investment choice among investors for centuries now. Indians, especially, have a great affinity towards gold. Not just for investments but Indians buy gold on most auspicious occasions like Diwali, Akshaya Tritiya, Dhanteras, etc.

Gold is considered a very safe investment and a very good addition to your portfolio. Most experts advise at least 10-15 percent of your portfolio to be gold investments. Investments in gold have also diversified over time. People do not only have buying physical gold as an option anymore. They can also invest in digital gold, gold bonds, gold ETFs, etc.

It is generally inversely proportional to market performances. When the market is undergoing a correction or a volatile period, investors move their investments to gold, which is considered a safe haven against market instability. However, one must note that it is not entirely risk-free.

Prices of gold are also affected by a number of external factors, however, it is a safer option compared to stocks.

Fixed deposits

This is also one of the older saving instruments in India. it guarantees fixed returns at a fixed rate after a specific period of time. The rate of return offered by an FD remains the same till it reaches maturity. It is not affected by market swings or domestic and global trends. However, banks can increase or decrease their FD rates. But once you fix your FD then the interest rate offered to you does not change.

If you start an FD, you definitely will get the maturity amount, no market crashes or corrections, or other trends that can affect that.

It has a number of advantages that make it attractive to risk-averse investors. Unlike gold, FD also provides certain tax benefits under section 80C for up to ₹1.5 lakh, if fixed for a minimum of 5 years.

Let's now understand the difference between the two investments

Risk: While both gold and FD are low-risk investments, prices of gold do fluctuate. It is affected by external factors like supply and demand or global prices etc. Market volatility also has an impact on gold prices. If the markets are volatile or crashing, gold prices increase and so does the demand but if the markets are rising investors move their funds towards riskier investments like stocks, decreasing the demand of gold and hence its prices. These factors do not affect a fixed deposit.

Returns: Gold investments generally offer better returns than fixed deposits. Gold prices have risen considerably in the last 5 years, giving substantial returns to its investors. However, in the case of an FD, the returns are fixed. Since the interest rate is not affected by anything, you will get the pre-fixed rate of return and it is generally on the lower end. It gives an average 5-6 percent return to investors but this figure is higher in the case of gold.

Liquidity: Gold investments are far more liquid than fixed deposits. You can sell physical or digital gold anytime and you will buy a seller. This is not the case for FD, the investment has a fixed lock-in period. One must note that it is possible to prematurely withdraw FDs in case of an emergency, however that attracts heavy penalties.

Additional income: Fixed deposits provide a better source of additional income. You can fix your money for a certain time and use the return as an additional income, but this is not possible in the case of gold investments. You can also reinvest your interest in the FD, increasing your investments.

Both FD and Gold are low-risk investments and can help you build a good corpus in the long run. If you want higher returns and are not afraid of fluctuations, gold is the way to go but if you are happy with lower but fixed returns, you should opt for an FD.