• 24 Jun, 2024

Real estate Vs Fixed deposits: Where should you invest?

Real estate Vs Fixed deposits: Where should you invest?

We frequently find ourselves in a bit of a bind when it comes to investments. What type of investments should we make with our cash? How can we increase our wealth? Legendary investors are frequently quoted as saying that your money should be working for you every day rather than sitting idle in the bank. However, we struggle to achieve this in practise due to uncertainty surrounding possible investment avenues, poor investment allocation, and unrealistic expectations for returns and rewards (which aren't always our own faults).

Indeed, the secret to increasing wealth is to make wise financial investments. No one can really dispute this fundamental premise. However, it is how you go about it that matters.

Fixed deposit

Fixed deposit or an FD is a type of banking product that falls under the category of term deposits. The ‘term’ in term deposit denotes the number of years in an FD or its tenure. It is simple and the best investment scheme for all types of investors as it offers assured returns with the least risk involved.

Benefits of Fixed Deposit

Fixed and Guaranteed Returns

FDs provide investors with guaranteed returns and fixed interest rates for the duration of their investment. You don't need to be concerned about market volatility or swings. For the long run, your investment will be safe and secure.

Building up future savings

You can invest safely with FDs to achieve your future objectives. Making investments now will enable you to accumulate a lump sum of money that you can use to fund major life goals like building or purchasing a home, purchasing a car, travelling abroad, paying for your children's higher education, and so on.

Flexible investment nature

It's not always necessary to make sizable investments in fixed deposits. Starting with Rs. 20–30,000, you can invest in an FD and let it grow over time. Several lakhs or more can also be contributed. Everything depends on how much money you have to spare over the long run. However, you are not required to invest a lump sum of money.

Tax saving opportunities

While banks will always deduct TDS from interest earned on fixed deposits, you can still save some taxes under Section 80C. This is accomplished by making investments in 5-year lock-in tax-saving FDs. You qualify for tax deductions for these FDs under this section.

Income generation options

FDs provide dependable opportunities to make money by earning interest on your deposits. You have the option of receiving interest payments every month, every quarter, or every two years. Some lenders also offer annual payout options. This provides you with a consistent monthly return, particularly if you have already invested a significant sum of money. Compounding returns allows you to earn interest on top of interest and amass a sizeable corpus for the future. With a fixed deposit, the options are fairly flexible.

Easy procedure for opening a fixed deposit account

Nowadays, if you have the money available, you can even open a fixed deposit account online. Before choosing to open a fixed deposit account with a specific lender, you simply need to check and compare the interest rates offered by various banks. It is a straightforward process that doesn't call for a lot of preparation or diligence.

Loan options

In a few circumstances, you may be able to borrow money against your fixed deposits. The FD can be used as a resource to raise money for business needs or to get through any other urgent situation.

FDs don't come with extra expenses

Unlike real estate investments, FDs don't come with any extra expenses. There are no additional fees required.

Real Estate

Real estate investments are appealing to investors because of the potential for high returns. But there is a sizable risk attached to it as well. One common misconception about real estate costs is that they will always rise. Property values and returns have historically increased dramatically, but it's also possible that they could eventually decline or plateau. A decline in the industry has occurred recently as a result of lower demand.

You need to be able to invest, whether you choose real estate or financial instruments. Rentable properties are a choice for those with an interest in real estate. Buying real estate with leverage and paying a portion of the upfront cost is another option, as is strategically moving houses.

Benefits of Real Estate

Tangible Asset

When you invest in real estate, you are creating a long-term tangible asset. It is a tangible and sturdy asset that will safeguard the financial future of your family.

Possibility of High Returns

While real estate does not guarantee returns, it does have the potential to generate extraordinary returns. Long-term real estate investment may offer you significant capital value appreciation benefits. Properties in advantageous locations have occasionally been known to guarantee 2X or 3X returns. You will benefit from excellent appreciation and returns on your investment by keeping a property for 10–15 years.

Income generating potential

Through monthly rentals, real estate investments enable investors to establish a second source of income. You can generate a consistent monthly income by renting out your property. This will enable you to eventually break even on your investment and create a reliable source of income for your family and retirement. In fact, rental rates rise annually as well, increasing your income and reducing inflation.

Tax advantages

Investing in real estate has sizable tax advantages. You will be able to deduct both your principal and interest payments if you borrowed money to purchase the property. Under Sections 80C and 24, you are eligible for annual deductions for principal and interest repayment of up to Rs. 1.5 lakh and Rs. 2 lakh, respectively. For those who are purchasing their first home, there are tax breaks available. Along with other benefits, affordable home buyers also benefit from PMAY interest subsides.

Information for Real Estate Investing

A sizable financial investment is needed for real estate. For the purchase of any property, a lump sum investment is required. Even the down payment is a sizeable amount, particularly in significant Indian cities. For buyers, there are additional costs. These include registration fees, stamp duty, and other supplemental expenses such as floor rise fees, garage fees, society dues, etc. The initial cost of the property includes these.

Liquidity issues are a concern. You can break your FD by paying a fine or losing interest, but you cannot just sell off your real estate. It takes a great deal of time and effort. You must invest money, time, and effort on a regular basis in the upkeep and renovation of your property.

The Take-Away

It is actually a no-brainer if you are looking to compare fixed deposits and real estate. Invest in real estate for the long term if you can. Long-term appreciation of your investment's value will make it much more valuable if you decide to sell it, and you can also use the asset to generate a reliable monthly income while you wait. Additionally, you'll receive tax advantages that will significantly

Nevertheless, don't completely disregard fixed deposits. Set aside a portion of your portfolio for such low-risk investments in order to achieve certain objectives. Know exactly how much you are willing to spend on this in advance. Real estate, however, is the bigger objective that will provide social and financial security for your family in a way that few other investments can. lessen your workload. Additionally, you can protect your family's future from inflation by creating a tangible asset today.