Stock Market Crash 2020 – SDP vs. Equity: Which One is Best for You?

The disease pandemic has left thousands affected throughout the globe. India is no different in this regard, as a report states that the endemic has already wiped off wealth equalling 40% of the country’s Gross Domestic Product for the current financial year. 

Direct equity investors are feeling this effect the most, with the virus and surrounding panic wiping out millions of their investments. Thus, at such a time, average individuals are trying to find safer investments with high returns in India. While fixed deposits are one such option, these require you to deposit a lump sum amount. Doing so can be tricky, especially considering the on-going onslaught from the virus. On the other hand, systematic deposit plans present the perfect opportunity for investment at such a time.

What is a Systematic Deposit Plan?

A Systematic Deposit Plan refers to a feature of a fixed deposit where the depositor can invest certain amounts monthly. Therefore, instead of a significant lump sum payment, you can pay smaller, manageable sums every month. You need to deposit this sum on the same date of each month, and the interest rate prevalent on that date is applicable to that month’s deposit.

Being a feature of FD, Systematic Deposit Plans are just as safe and secure as the former. Additionally, it allows you to earn a similar rate of interest on the deposited amount when compared to fixed deposits. Thus, your search for safer investments with high returns in India can stop here.

Systematic Deposit Plan vs. equity investments

In the current scenario, equity investments are not a wise move, especially since the market is still in decline. With no predictions on when the disease threat can be contained, this market crash is expected to have far-reaching effects for companies operating in India and abroad.

On the other hand, a Systematic Deposit Plan customer can get through this difficult time with minimal or no loss. The following comparison should help you decide the better option by determining your strengths and weaknesses.

  • Risk and safety

Systematic Deposit Plans are not linked to market risks, meaning that they are the safer option as a savings scheme. Equities, on the other hand, are directly subject to changes in the market. Thus, an amateur or ill-informed individual can lose his/her savings through equity investments. 

Apart from the market risks, equity funds also suffer from other types of risk, such as performance and liquidity risk. Fortunately, none of these is a concern when an individual parks his/her excess funds through online application form for SDP

  • Investment expertise necessary

Since a Systematic Deposit Plan from Bajaj Finance bears almost no risk, individuals can choose to save their excess funds through such an option. Additionally, they can earn a sizable interest in the deposited sum as well.

Equity investment, on the other hand, requires immense experience and expertise. An individual who has spent years learning the quirks of the market can invest in equities with relative safety. New or prospective investors should avoid the same since they would be unable to pick stocks that effectively. Choosing the wrong stocks could lead to substantial losses and financial insecurity.

Even veteran investors can misjudge a stock, leading to loss. Thus, as a new and inexperienced investor, sticking to Systematic Deposit Plans can be an ideal option.

  • Return from investment

A Systematic Deposit Plan can provide sizable returns on the deposited sum, depending on the interest rates, tenor for investment and number of deposits. Nonetheless, earning potential from equity investments tend to be greater than most other market instruments. Still, the increased risk factor from such investments may not justify the additional interest earnings, especially for an individual who is just starting out in the investment field.

Depending on financial goals, those looking for guaranteed returns should consider Systematic Deposit Plans, as these are the safer investments with high returns in India.

  • Encourages saving habit

A Systematic Deposit Plan promotes the habit of saving a certain sum of money each month. One also earns fixed interest upon keeping this sum locked-in for the tenor of choice. 

On the other hand, direct equity investment allows investors to buy or sell shares regularly. Therefore, there is no mandated lock-in period, which means that investors are not encouraged to save more and spend less. 

At the end of the day, both direct equity investors and Systematic Deposit Plan customers can utilize certain benefits from each option. You need to determine your savings objective before picking one or the other. Additionally, your risk appetite should also factor into this decision. Use an SDP calculator to understand profitability from such deposits.

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