How to compare dividend yield vs fixed deposit interest rate



I'm a beginner in stock market and at present I make profit by short term buy/sell only. Now, I want to invest in long term bule chip divident paying equities but confuesed about how to compare Fixed Deposit interest rate with Dividend yield in %. Can anybody help me to understand this aspect better and list some bule chip stocks

 
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If you are looking for higher dividend yeild companies please find attached file for your information.

Please note dividend yeild should not alone be considered as the criteria to identify multibaggers. Look for quality companies with following factors.

1. Management Credibily

2. Low debt quity ratio

3. Return on Equity 

4. Return on Capital Employed

Regards,

Arjun Rajagopal


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Thanks Arjun,

Can you please suggest a few trustworthy companies which gives returns more than bank term deposits?  ...not looking for huge returns on high risk..

 
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Originally posted by : Yaaros PS
Thanks Arjun,

Can you please suggest a few trustworthy companies which gives returns more than bank term deposits?  ...not looking for huge returns on high risk..

Dear Yaaros,

Please note that Stock Market Returns are not guaranteed returns like bank depostis. However If you are willing to invest a small portion of your hard earned money in stocks and wait for 2-3 years kindly consider following quality companies

1. Garware Wall Ropes (leader in technical textiles sector)

2. Canfin Homes ( Fast growing Housing Finance Company)

Iam not providing detailed analysis on the above two companies. Kindly do your research or consult your financial adviser before investing. You may do your research by reading their financials, balance sheets , annual reports atleast for the last 3-5 years which can be accessed from www.bseindia.com

 

Regards,

Arjun Rajagopal

 
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Financial Adviser

Fixed deposits have been a part of each and every Indian household. Our grandparents, parents have all ended up in investing in FDs at least once in their lifetime. All bonuses went to FDs. Whenever they had to save money for a goal, they put it in an FD. It was the best option to earn interest while ensuring capital protection.

Over the past few years, mutual funds have come to the core. As a result, FD is no longer considered as the most popular long-term investment goal. In this article, we’ll see how debt funds – a type of mutual funds fare better than the conventional FDs.

  1. A transition from Conventional FDs to Mutual Funds
  2. Why invest in Debt Funds?
  3. Debt Funds vs Fixed Deposits
  4. Taxation on Debt Funds and Fixed Deposits
  5. Comparing the inflation adaptability of Debt Funds and Fixed Deposits

1. A transition from Conventional FDs to Mutual Funds

During the demonetization in 2015, Mutual funds were able to cash in onto the opportunity of the reduced deposit return rates. It was able to perform way better than the FDs, giving returns more than 2x times of the investment. Also, due to the availability of some tax saving mutual funds, mutual funds rose to prominence.

All these factors made no sense for an investor to continue with his conventional FD and so many decided to jump ship.

 

2. Why invest in Debt Funds?

Mutual funds are categorized into three types:  equity fundshybrid funds and debt funds in descending order of their risks associated respectively. Debt funds are the closest which comes to the conventional FDs in terms of risk.

A debt fund’s main goal is to give investors a steady income after the maturity period, and you must choose a time horizon in line with that of the fund.

You can find out about various debt funds and their duration directly from the fund houses or online or through a third-party. This will help investors understand a fund’s performance with respect to interest and return rates, which makes it easier for you to avoid market volatility by making informed decisions.

 

3. Debt Funds vs Fixed Deposits

Let’s have a detailed look at the differences between fixed deposits and debt funds. The table below helps you decide which investment is suitable for you.

 

 

Particulars Debt Funds Fixed Deposits
Rate of returns 14-18% 6-8%
Dividend Option Yes No
Risk Moderate Low
Liquidity High Low
Investment Option Can choose either an SIP investment or a lumpsum investment Can only opt for a lumpsum investment
Early Withdrawal Allowed with or without exit load depending on the mutual fund type A penalty is levied to withdraw prematurely
Investment Expenditure An expense ratio of 2.5% is charged No management costs

 

 

Banks offer a pre-set interest rate for fixed deposits based on the tenure chosen. Debt fund returns are solely dependent on the market movement – they have historically earned higher returns (sometimes even more than double) in the form of capital appreciation on top of interest.

One good thing about fixed deposit is, market highs and lows will not impact the returns you earn. So typically, debt funds outdo fixed deposits by a huge margin during market highs and slightly underscore FDs when the market is down.

 
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