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Which Is the Better Investment for You: Fixed Deposits (FD) or Real Estate?

INVESTMENTOCT 31, 20237 min read
Which Is the Better Investment for You: Fixed Deposits (FD) or Real Estate? blog's cover image

Fixed Deposits, often known as FDs, have served as an essential kind of insurance for millions of people in India throughout the years. They are considered to be risk-free investments that are unaffected by the ups and downs of the market. However, how do they stack up against real estate in terms of their profitability? The picture is being examined in great detail here.

A diversified financial and investment portfolio is typically recommended by financial and investment experts for all persons with varied degrees of risk. The first layer consists of the obvious life and health insurance policies, as well as fixed-income assets such as FDs, PPF, and other similar products. After that, we have investments with higher levels of risk, such as gold, real estate, and stocks and mutual funds. How does the fixed deposit (FD) measure up against the value of real estate when seen in this light?

The Primary Advantages of Having a Fixed Deposit

Returns That Are Both Fixed and Guaranteed Fixed deposits (FDs) provide investors with returns that are both fixed and guaranteed. FDs also offer investors a fixed interest rate for the whole period of the investment. There is no need for you to be concerned about any kind of market volatility or fluctuation. Your expenditure won't be in danger over the course of the long haul at all.

FDs allow you to make secure investments for the purpose of building up future savings and accomplishing future objectives. Making investments now will assist you in accumulating a lump sum corpus in the future, which will be of assistance to you in achieving major life goals in the future, such as constructing or purchasing a home, purchasing a vehicle, traveling to a foreign country, meeting the costs of higher education for children, and so on.

Because of the flexible character of the investment, it is not always necessary to put a significant amount of money into a fixed deposit. You can open a fixed deposit with somewhere between 20,000 and 30,000 rupees and wait for the money to grow over time. You also have the option of contributing a few lakhs or even more. Everything hinges on how much money you can put aside for the journey ahead. You are not required to make a one-time investment of a set amount of money under any circumstances.

Even though the interest generated on fixed deposits is always taxable and banks will deduct TDS on the same, you can still save some taxes by utilizing Section 80C. This is despite the fact that interest paid on fixed deposits is always taxable. Investing in tax-saver fixed deposits (FDs) with a lock-in term of five years makes this objective attainable. You may be eligible for tax deductions for certain FDs under this particular clause.

Possibilities to produce money FDs also provide regular opportunities to generate revenue in the form of interest that you earn on the deposit you make in the account. You have the option to select the frequency of interest payments on a monthly, quarterly, or semi-annual basis. When working with some lenders, you may also have the option of selecting annual payouts. Because of this, you will receive a consistent return each month, which is especially beneficial if you have already invested a significant amount of money. You also have the option to have the returns compounded, which will result in you receiving interest on the interest you earn and creating a sizable nest egg for the future. With a fixed deposit, you have a lot of different alternatives to choose from.

A straightforward process for starting a fixed deposit account These days, if you are prepared with the necessary funds, fixed deposit accounts can even be started online. Before deciding to open a fixed deposit account with a specific financial institution, all you need to do is verify and compare the interest rates offered by the various financial institutions. Because the process is straightforward and uncomplicated, it does not necessitate as much preparation or research.

Loan facilities In some circumstances, you may be eligible to receive a loan secured by your fixed deposits. You can use the FD as an asset to raise funds in order to satisfy the requirements of your business or to get you through any other pressing situation.

FDs do not require any additional fees; in contrast to investments in real estate, FDs do not require any additional costs. There will be no additional costs that you are responsible for paying.

Advantages of Putting Money Into Real Estate

You May Construct a Tangible Asset for the Future If you put your money into real estate, you can build a tangible asset for the future. It is a tangible and reliable asset that will ensure the financial well-being of your family in the years to come.

Possibility of Extremely High Profits Although returns on real estate investments are not assured, there is the possibility that they will be significantly higher than usual. It's possible that making a long-term investment in real estate will net you significant returns in the form of increased capital value. Properties situated in advantageous areas have been known to produce returns of two or even three times their initial investment on occasion. Maintaining ownership of a piece of real estate for ten to fifteen years will help you realise outstanding appreciation as well as profits on your investment.

Income Generating Options The monthly rental income that comes from real estate investments provides investors with the opportunity to generate a second source of income. You may generate consistent revenue each and every month by renting out your house. This will enable you to develop a reliable income channel for your retirement and your family in the future, which will help you break even on your investment over the course of some length of time. In point of fact, rental prices increase on an annual basis as well, providing you with extra revenue that will assist you in coping with the effects of inflation.

Tax Benefits- Real estate investments give you considerable tax benefits. If you have purchased the property with the assistance of a home loan, then you are eligible for deductions that apply to both the principal and the interest that you have paid back on the loan. You can receive a deduction of up to Rs. 1.5 lakh and Rs. 2 lakh yearly for the repayment of principal and interest, respectively, under Section 80C and Section 24 of the Income Tax Act. Additionally, first-time home buyers are eligible for certain tax deductions and credits. Homebuyers who qualify for the PMAY programme receive interest subsidies in addition to the other incentives offered by the programme.

Considerations to Make Before Beginning an Investment in Real Estate

Real estate involves a substantial cash commitment. Purchasing any kind of real estate requires a one-time investment of a substantial chunk of money. Even the first deposit is a large sum, particularly in the more significant Indian cities.

The purchasers will incur additional expenses. These include the costs of registration and stamp duty, in addition to many other costs such as floor rise charges, garage costs, and society fees, amongst other things. These contribute to the initial cost of the property.

There is a factor of insufficient liquidity. You can break your FD, but doing so will cost you a penalty and cause you to lose out on any interest that has accrued. You cannot sell off real estate in this manner. It takes a significant investment of both time and effort.

The upkeep and repair of your property will periodically require financial investment, as well as your time and commitment in the process.

Most lucrative investment opportunity available in real estate.

In spite of this, there is evidence that things are obviously rebounding in a favorable direction in the Indian real estate market. Residential demand has increased, which has led to an increase in property prices across all of India's top-8 cities, and this increase is expected to be between 3% and 7% in 2021. According to recent reports, more than 2 lakh units were sold during the course of the previous year, and the sales figures for these primary cities increased by 13% in comparison to the year 2020. The analysts at ET Money have also brought to light the fact that the overall return on real estate investments over the past decade has averaged out to 10%. The nine largest cities in the country are taken into consideration here. Taking this number into consideration, it is reasonable to assert that returns on real estate investments have easily outpaced the rate of inflation. When taking into account the growth of various communities' economic and infrastructure sectors, the return on investment has sometimes exceeded expectations in certain instances.

What have you learned from this?

When compared with other investment options, such as fixed deposits and real estate, this one is a no-brainer in terms of which option is superior. If you have the financial means to do so, consider making a long-term investment in real estate. In the long run, the value of your investment will rise substantially, which will make it more desirable for you to sell it. In the meantime, you will also be able to derive consistent monthly income from the asset. In addition to this, you will be eligible for tax incentives that will make things a lot easier for you. In addition, you can construct an intangible asset for the future while also protecting the household from the effects of inflation in the years to come.

In the same vein, you shouldn't totally disregard the value of fixed deposits. Make sure that some of your investing portfolio is focused on low-risk assets like these so that you can achieve your objectives. Regarding the amount of money you are willing to spend on this, you should have a specific plan in mind. Nevertheless, purchasing real estate should be the primary focus because it will provide a level of economic and social stability for your family that very few other investments can match.

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