Gold vs fixed deposit (FD) vs mutual funds: What is a better plan for retirement?
Retirement is one of the most common reasons which triggers an individual to build a financial plan for investments.
Gold vs FD vs mutual funds | Photo Credit: BCCL
Key Highlights
- With the help of fixed deposits, a person can earn risk-free interest on deposits
- Mutual funds (especially equity funds) can act as a return booster for the portfolio
- Gold, being a safe-haven asset, has been widely used by a bunch of investors for hedging purposes around the world as it provides stability to the portfolio
New Delhi: Retirement is one of the most common reasons which triggers an individual to build a financial plan for investments. Retirement planning is primarily important for all the people as the regular stream of income stops after the completion of regular working tenure. Even though, there is a large section of people who continue to earn a regular income from other sources such as property rentals, periodic income from an NGO, etc.
As far as the salaried individuals and middle-income groups are concerned, retirement planning is of utmost significance. There seems to be an invariable confusion with regard to the selection of the assets and the investment options which can be used to build a retirement fund. No matter where the people are putting their money, the investments should remain well within the respective risk-taking capacities which can help in building a sizeable corpus for retirement.
Gold vs FD vs mutual funds: Which is a better plan for retirement?
Gold and fixed deposits have been considered as the most conventional investment choices by many people due to the relatively low risk as compared to other lucrative options such as stocks, corporate bonds and other market tradable securities. Low risk, faster convertibility into cash, long-term growth, inflation-beating returns are some of the characteristics which can be evaluated before selecting an investment plan for a retirement fund.
A definitive mix of gold, fixed deposits and mutual fund schemes can be considered for building a retirement fund as every asset has its own benefits and shortcomings. Gold, being a safe-haven asset, has been widely used by a bunch of investors for hedging purposes around the world as it provides stability to the portfolio. The fastest convertibility into cash with zero-to-minimal documentation and worldwide acceptance are some of the unique traits of gold which makes it more likeable.
Fixed deposits, on the other hand, provide a stagnant cushion of returns which can help in maintaining the overall return of a portfolio during a slowdown. With the help of fixed deposits, a person can earn risk-free interest on deposits, however, the returns are not so lucrative in India as the nation is progressing steadily to become a developed nation.
The interest rate offered by scheduled commercial banks in developed nations stands below 3 per cent. Surprisingly, the central banks of Japan, Sweden and Denmark have fixed the key lending rates at 0.1 per cent, 0.25 per cent and 0.75 per cent, respectively. While, the central banks of the US, UK, UAE and South Korea have fixed the repo rates at 2.25, 0.75, 2 and 1.25 per cent.
Whereas, mutual funds (especially equity funds) can act as a return booster for the portfolio as the average one-year return of most of the large-cap equity funds varies between 12 and 18 per cent per annum. Unlike benchmark equity indices Sensex and Nifty, the underlying assets of mutual fund schemes are more dynamic. The prime intentions behind the revision of a mutual fund scheme are to optimise the return and increase sustainability.
The returns of mutual funds may also turn negative during an extended bearishness among the participants and investors. A similar situation is prevailing nowadays. Nonetheless, the returns get back on track after a certain stretch of time.
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