Gold vs FD: How To Choose Between The Two Low-Risk Investment Options

6 mins read
by Angel One

When it comes to investing, investors have a plethora of options. Stock market investment is the best and the fastest route to build wealth. But investors also choose from alternatives like fixed deposit, recurring deposit, or gold investment for risk-free returns. Amid weakening stock market returns and rising volatility, more investors are inclining towards traditional investment to hedge against risk.

Both gold and fixed deposit are popular options for low-risk investment. In this article, we will discuss gold vs FD as investment alternatives.

If you are planning to begin your investment journey in 2021, then understand the different investment choices available to you before you jump.

Gold Investment

let’s talk about investing in gold.

India’s affinity for gold is well known. Indians consider buying gold as auspicious, especially during festivals like Diwali or Akshay Tritiya. Many people will wait for a whole year to buy gold for special occasions.

Gold is considered a good investment to generate low-risk returns. Usually, gold price and stock market performance move in opposite directions. And so, when market volatility rises, investors shift their investment to low-risk gold.  It offers a safe haven for investors to hedge against increasing instability.

However, it’s not completely risk-free. The gold prices can drop due to external parameters. But compared to stocks, it is less volatile. It helps in portfolio diversification and reduces the overall risk of the portfolio. Several investment experts would suggest diversifying with 10-15 percent investment in gold or gold alternatives to balance the risk-reward of a portfolio.

Millennial investors have more options to invest in gold besides just buying the physical metal. They can select from sovereign gold bonds, gold-backed ETFs, gold as a commodity, and even e-gold.

Advantages Of Investing In Gold

  • Low in risk. Less volatile compared to stock investment. gold price appreciates when stock market performance declines
  • Historical data shows that gold price has an upward tendency. In the past few years, gold price has steadily appreciated
  • Gold will always have value and therefore, offers liquidity at the time of crisis
  • Gold can be used as collateral for a loan

Few things to consider while investing in gold

  • Gold price is always under flux due to domestic and international factors. As a result, gold price has inherent volatility
  • Storing the yellow metal involves risk, including the risk of theft. Moreover, it doesn’t earn a return. Compared to that, investing in gold-backed ETF and sovereign gold bonds offer the advantage of investing in gold as underlying without incurring the inherent risks of storing gold

Investing in Fixed Deposit

Fixed deposit is a traditional form of saving that generates a fixed return on investment over a period. FDs offer a higher rate of return thana regular savings account. Also, the maturity amount is assured and not affected by market volatility. FD helps in inculcating regular savings habit in investors.

Investing in FD has several advantages, making it attractive to low-risk appetite and novice investors.

Advantages Of Investing In FD

  • It encourages savings by forcing investors to deposit a fixed amount towards FD
  • Investors enjoy tax advantages under section 80C of the Income Tax Act. It falls under the category of exempt-tax-exempt, which means that although the interest earned is subject to tax, one can claim exemption upto Rs 1,50,000 for the amount invested.
  • FD investment earns a higher return than saving deposits, offering a hedge against rising inflation
  • Flexible tenure varying from seven days to ten years helps investors plan their future financial goals with a fixed deposit. Investors can select a period to match their business or personal needs
  • As an asset, a fixed deposit offers liquidity that can be converted to cash easily. Although early withdrawal will attract penalty, it is easier to withdraw when needed

However, In Indian economy, the interest rate on FD is undergoing some stress. It hs reduced significantly over the years, making it less attractive to young investors.

Gold Vs FD Returns: Selecting The Better Investment Option

The Risk Factor

Fixed deposits are a relatively low-risk investment. It has fixed tenure and maturity, independent of external influences. On the other hand, gold price is prone to fluctuation due to demand and supply factors. It is subject to cyclical gain and losses according to the economic cycles. Gold price spikes when the economy is contracting, and investors sought a safe investment option.

Gold ETF, which allows investors to invest in gold as an underlying, is subject to market risk. These exchange-traded funds follow gold as an underlying and supply and demand indices.

Return On Investment

Investing in gold offers a substantial return. Gold price has jumped significantly as stock market fluctuation rose due to the pandemic, price appreciated by 34 percent from last year. General estimation says if an investor has invested in gold for five years will receive a return of 10.7 and 11.9 percent respectively over ten and 15-years period. Gold ETFs have generated a cumulative return of 5.37 percent for a period of five years.

On the other hand, fixed deposit accounts have earned an average return of 5-6 percent.


When we consider investment options, liquidity remains an important decision-making factor. The stock market offers complete liquidity as one can buy and sell stocks anytime. In comparison, FD offers limited liquidity.

Fixed deposits come with a fixed lock-in period, and there would be penalties for early withdrawal.

Ease of liquidity makes Gold a preferred option for investors. Gold-backed ETFs trade like stocks in the exchange during the trading hours and therefore, are highly liquid. Gold ETFs are like investing in gold without the hassle and risk of storing physical gold.

Supplementing Income

If you are looking for an investment that would supplement your income, then gold falls short in that regard. Although gold offers liquidity and you can sell it anytime, price volatility remains a concern.

Fixed deposit scheme generates a secondary source of income. Since the tenure and return are secure, you can manage the return from a FD to supplement your income.

Let’s look at the comparison chart for clarity over gold vs FD investment

Risk FD is low-risk investment with fixed tenure and maturity Gold is also low-risk. Though there are risks involved in storing and safekeeping physical gold
Market nature FD return is independent of market factors, hence, supplements your income The gold price fluctuates with market factors. Demand and supply of gold depend on domestic and international political and economic conditions
Returns FDs generated a CAGR of 8 percent in the last thirty years During the same period, gold generated CAGR of 9.8 percent
Liquidity One can select a flexible term from seven days to ten years and alsoopt for premature withdrawal with some penalty at the time of need Introduction of gold ETFs has improved liquidity of gold investment
Income supplement In the case of FD investment,one can choose interest payout frequency to supplement income or opt to reinvest the interest amount for a larger return Gold is an asset that can help you generate wealth over a period. It is not designed to supplement income
Taxation Interest earned on FD is described as income from ‘other sources’ and taxed at the existing income tax slab Return from gold investment falls in the category of capital gain, and one can receive benefit from indexation


Both gold and fixed deposit are a low-risk investment that helps investors build a corpus in the long run. FD generates a fixed return on maturity, independent of market factors to align with your financial goals. The gold price fluctuates with the economic cycles, but its price has always shown an upward trend. Introduction of gold ETFs has made it easier to invest in paper gold and enjoy higher liquidity.

In gold vs FD, both have generated a good return in the long run. after considering the above factors, you can select gold or fixed deposit scheme as per your risk appetite and financial goals.