Stock markets near all-time highs! Where should you invest your money now?

With Indian stock markets continuously breaching peaks, many investors find themselves at a crossroads as they keep contemplating their next move amidst the possibility of profit-booking. The looming question on their minds is whether it’s time to look for other investment avenues such as fixed deposits (FDs) and debt funds.

Investors find themselves indecisive in two situations – first when the market scales new peaks, triggering speculation about possible corrections in stock valuations; and in the second situation, when the market falls, prompting investors to seek alternative investment avenues that may offer better returns than equities.

Under both situations, investors often explore alternative investment options due to several reasons. As uncertainties drag, more and more investors consider shifting their investments to safer options like FDs and debt mutual funds.

Also read: Bonds Vs Fixed Deposits Vs Post Office Schemes: Liquidity, risks and returns compared!

Fixed deposits:

Fixed deposits are one of the safest ways to grow money over time with a fixed interest rate. FDs are straightforward and stable investment avenues that offer consistent interest without any risks. FDs often provide special rates for seniors and give you options for how you receive your interest payments.

Debt mutual funds:

As the name suggests, debt funds are the mutual fund schemes that have exposure to fixed-income instruments like corporate bonds, government bonds, corporate debt securities, and money market instruments. Debt funds or debt mutual funds are known as income funds or bond funds. Asset management companies hire qualified fund managers who run debt fund schemes.

Viram Shah, CEO of Vested Finance, shared insights into the appeal of fixed deposits (FDs) and debt funds, highlighting why they stand out as investment options and why conservative investors are drawn to them.

Both FDs and debt funds protect investor money, but debt funds have the potential to generate better returns as the fund manager can change the investment strategy to make the most of market conditions, Shah noted.

“Usually, corporates have to offer more to investors to get funding from investors in uncertain monetary market conditions. Thus, investing in a debt fund can get better bang for the buck. Investors should be aware that debt funds carry more risk than FDs, so extremely conservative investors should stick to bank FDs,” he added.

Shrinivas Khanolkar, Head of Products, Marketing & Corporate Communication at Mirae Asset Investment Managers, provided a comparison between fixed deposits and debt funds, covering key aspects such as interest rates and credit risks associated with both investment tools.

Choosing between fixed deposits and debt funds depends on the individual investor’s needs, risk tolerance, and desired returns.

“If an investor just wants to park money and expects capital security and assured returns, FD would be the investment choice. But, if the investor wants to have a more dynamic experience, debt funds can be looked at. Debt funds are susceptible to liquidity, interest rate and credit risks,” Khanolkar pointed out.

In volatile market situations, while fear takes precedence what most investors ignore is the opportunity that volatility presents, he said. “Especially if one looks at current times, when key interest rates are at all-time high levels, and central banks look like in a mood for staying at higher for longer. Debt mutual funds could take advantage of these elevated yields translating into better returns.”