When deciding where to invest, most people select options that fit their desired financial results and their comfort with risk. IPOs (Initial Public Offerings) and Fixed Deposits (FDs) are the two investment options for investors. Investing in this can yield high returns, but it also involves a greater level of risk than traditional investments. On the other side, a Fixed Deposit offers security since you deposit your money with a bank for a period and gain interest. An FD calculator will show you the returns you can get from your fixed deposit. Ensure you research and determine how both options support what you require and offer.
Investing in an Upcoming IPO? Here’s How It Compares to Fixed Deposits
Are you interested in putting your money into an IPO? It is helpful to compare the risk and profitability of mutual funds and fixed deposits.
1. Risk vs. Safety:
Investing in an IPO is riskier than putting your money in fixed deposits. An IPO investor purchases shares of a company that is starting to appear on the stock market. Although some companies may grow very fast at first, they can still drop in value if their results are unsatisfactory. There is a lot to gain, but you can also end up losing it all. The returns may not be high, but your money is protected, especially if it’s held in a trusted bank.
2. Returns on Investment:
IPO investments yield remarkably high returns over relatively short periods. Shares may go high after a company’s initial public offering performs fabulously, often doubling or tripling in value within mere months. Earning big returns quickly draws people to IPOs. Fixed deposits offer predictably steady returns. For someone who prefers stability over taking chances FDs are a reliable option.
3. Liquidity and Lock-in Period:
IPOs and FDs differ in that FDs are easier to access. When an IPO is over, the shares can be sold on the stock exchange as soon as they are listed, usually in a few days. This way, you have more options, yet only in situations where the market is friendly. You may lose money if you need to sell your shares quickly. Usually, money kept in fixed deposits cannot be withdrawn earlier than a specified period without incurring a penalty.
4. Suitability Based on Goals:
Investors seeking higher returns and willing to take considerable risks might find an IPO fairly suitable for their investment needs. People who obsess over stock market fluctuations often choose it because they can stomach wild gyrations in its value quite readily. Fixed deposits suit conservative investors, such as retirees or individuals saving for a major purchase in the future, fairly well.
5. Tax Impact:
IPOs and fixed deposits get taxed differently. Selling IPO shares for profit may necessitate payment of capital gains tax. Amount owed varies greatly depending on the length of time shares were held before being sold quickly. Short-term gains get taxed way more harshly than long-term ones usually are in most tax jurisdictions. You don’t pay tax if there’s no profit whatsoever. Interest earned from fixed deposits gets fully taxed as regular income.
Final Words
To sum up, if the company performs well, investing in its upcoming IPO may yield significant returns, albeit with increased risk. How much risk you can tolerate and what your objectives are should guide your decision. If you select an upcoming IPO prudently, it can offer you a chance to benefit from long-term investments. When you prioritise safety, consider fixed deposits. Those who are comfortable with high risks can consider investing in IPOs.