Updated on: Sep 21st, 2023 | 10 min read
Gold is often considered an inflation hedge, i.e., an investment capable of protecting you from the decrease in the purchasing power of your native currency. You can use such assets to save yourself from the anticipated drop in the value of money. Similarly, fixed deposits help you grow your savings at a fixed interest rate. They are safe and secure investments, and you can choose to terminate them anytime you want.
Wondering which is the best investment for you: gold or FD? This article will explain in detail what sovereign gold bonds and fixed deposits are, their respective benefits, and help you settle the sovereign gold bonds vs fixed deposit debate.
The Reserve Bank of India issues Sovereign Gold Bonds (SGBs) on behalf of the government. These bonds are issued in small tranches, enabling you to purchase small amounts easily.
Wondering what investing in SGB entails? Investing in sovereign gold bonds means owning gold without holding it physically and earning a fixed interest. The tenure for SGBs is eight years. The subscription amount per fiscal year varies depending on the investor. For example:
Investing in gold bonds can yield high gains with potential capital appreciation. Some of the key benefits of investing in SGBs are:
Fixed Deposits (FDs) are one of the oldest investment tools in the market. Since the early 1980s, FD has been popular with people of all income levels. It stands out among other investment options because of its long list of perks. You can open your Fixed Deposit either with any of the nationalised banks or with a Deposit Taking Non-Banking Financial Company (NBFC). You can deposit a fixed amount of money, and the banks repay the principal amount with interest at the end of the tenure. The maturity period for Fixed Deposits ranges from seven days to 10 years.
Like gold bonds, fixed deposits offer several benefits making it hard to choose one between FD and gold investment. Here are some of the benefits of investing in Fixed Deposits:
Sovereign gold bond vs fixed deposit, which is a better investment option? Should you opt for an investment in gold or a fixed deposit? Both these instruments offer many benefits. The detailed table below on gold vs FD might help you arrive at a decision.
Sovereign Gold Bonds | Fixed Deposits | |
Risk | There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold which he has paid for and interest is guaranteed by GOI. | FDs are not affected by external factors. However, inflation could adversely affect the real rate of return on deposits. The DICGC insures principal and interest up to a maximum amount of five lakhs. |
Returns | Sovereign Gold Bonds are lucrative given their periodic high return rates at 2.5%. This is over and above the gains from gold price appreciation. | Banking or deposit-taking non-banking financial institutions set the return rate when you open a new fixed deposit account. Returns are usually higher for senior citizens |
Liquidity | SGBs tend to have low liquidity | FDs offer more liquidity than sovereign gold bonds. You can withdraw your deposits anytime you wish (although, a penalty is applicable in case of premature withdrawal) |
Loan facility | You can use SGB as collateral for loans from banks, financial institutions and NBFCs | You can avail loans against your FDs; the amount varies across banks |
Tax benefits | Capital gains on Sovereign Gold Bonds are not taxable even if you hold till maturity. | The interest earned on fixed deposits is fully taxable. However, senior citizens do get a deduction of up to Rs. 50,000 on the interest income. |
So, between SGB and FDs, both are secure choices for investing your surplus money. If you are new to the financial market, you can consider investing in either of them. Invest in these financial instruments after minutely assessing your risk tolerance capacity and understanding the terms and conditions.
Analyse your short-term and long-term financial goals and choose what suits you better between sovereign gold bond vs fixed deposit.
What are the different ways to invest in gold?
Earlier, if you wished to possess gold, the only way to do so was by purchasing the physical metal from the market. However, it came with many costs, such as polishing, storing, etc. But, today, several alternatives to physical gold, such as digital gold, SGBs (Sovereign Gold Bonds) and Gold ETFs (Equity Traded Funds), are available. You can invest in them to avoid maintenance expenses and earn interest on your investment.
What are tax-saver FDs?
Tax-saver Fixed Deposits allow you to claim a deduction of up to Rs. 1.5 lakhs from your net taxable income under Section 80(C) of the Income Tax Act. This deduction can be claimed only in the year the FD account is opened. Notably, the interest earned on Fixed Deposits is always taxable (with the exception of senior citizens who get a deduction of up to Rs. 50,000 on the interest income as well).
What are the risks associated with SGBs?
Loss of capital is the only risk associated with SGBs. The prices for gold bonds are dependent on the rates of gold in the international market. It goes up and down based on market conditions. You could incur a capital loss if the market price of gold falls.
What are the risks associated with FDs?
While fixed deposits have clear benefits, they also come with certain risks. For instance: