Differences Between Fixed-Recurring Deposits, Saving-Investing, Stock-Mutual Fund, Term Plan-Ulip

Are you a new investor? Here are some financial terms that can confuse you. Check out if you can recognize differences between Term Plan Vs ULIP(Unit Linked Life Insurance), Fixed Deposit Vs Recurring Deposit, Saving Vs Investing and Stock Vs Mutual Fund.

Term Plan Vs ULIP(Unit Linked Life Insurance)

Term Plan -

The name 'Term Plan' itself implies that it is an insurance policy that protects the policy buyer or policy owner for specific period of time depending upon the level term which can be from 5 years to 30 years, if the policy owner dies during the term, the insurance company pays policy's face value to policy owner's family or beneficiary such that they don't suffer financially. It's a life insurance where you, the policy owner, have to pay every year a fixed premium to the insurance company till the policy term ends. If you are alive then you don't get any money at the end of policy term.

ULIP
ULIP | Source

ULIP (Unit Linked Life Insurance) -

ULIP is not a life insurance such as whole life policies. It's a life insurance where the premium paid by you is used for two purposes, for Life cover and for Investment. It's a life insurance which not only ensures your life but also invest some money from premium paid by you in the stock markets and at the end of the term gives you a certain amount. It's premium is very high such that a small portion is for life cover and large portion is used for investment in stocks. It is riskier as it is linked to the market.

Fixed Deposit Vs Recurring Deposit

Fixed Deposit -

A fixed deposit allows you to deposit lump sum for a specific period of time at a specified rate of interest. The more is the deposit term, higher is the rate of interest. Once deposited, you cannot withdraw your funds till the term ends, this is the most unusual characteristic of a fixed deposit, if you try to withdraw your funds before the stipulated time, you will be penalized. As you gain interest on the amount deposited, that interest is taxable every year and if the interest earned by the customer is above Rs10000(India) per year than bank can deduct tax at source.

Recurring Deposit -

If you don't have lump sum money to deposit but have a regular income than you can go for recurring deposit where you deposit a fixed amount of money every month for a predeclared period at a specified rate of interest. The interest earned by the customer from these is taxable every year though the bank will not deduct any tax at source. You can be penalized depending upon the maturity value and the rate of interest. The maturity value is calculated by bank by a certain formula.

Saving Vs Investing

Saving -

If you have some money say in a banks savings account or in a safe place, the money which you are not spending then you are saving your money. These money can meet your short-term goals like for urgent medicines, repairs of home appliances etc, your money won't grow or will be doubled as you haven't deposited or invested and are not earning any interest on them.

Investing -

Investment is done to fulfill your long term needs like for money after retirement or for health or any property etc. Financial investing is putting some money and allowing your money to work for you with the expectation of gains. So you put your money in deposit accounts or in stock markets or in an instrument that will earn a return for you at certain rate of interest depending upon the risk taken. As you invest more money, returns would be higher depending upon the risky areas invested by you.

Stock Vs Mutual Fund

Stock -

When you buy any company's stocks or shares depending upon the market, you become one of those members of that company and you have a right over its earnings and assets like if a person owns or buys 100 shares out of 1000 shares of a company, person owns 10% of the company. You can buy shares or sell your shares depending upon the stock market either yourself, if you know how to do or via broker. Broker will follow your decision, whether to buy or sell, so you need to do lot of research and keep on monitoring the stock market continuously. The risk in these kind of investment is high but short-term returns are also high.

Mutual Fund -

If you have a tight busy schedule such that you don't have time to monitor stock markets then you can entrust a fund house to do it. You can invest your money in a mutual fund where the risk is quite less, instead of investing and buying stocks yourself. Your money would be safe here and you just have to invest money via Systematic Investment Plan (SIP), you don't even need to keep on monitoring since fund manager is doing it for you. Returns would be less but you will definitely earn something, whereas in stocks there are chances where you can earn nothing or even lose your invested money if you don't monitor stock regularly.

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Comments 3 comments

Beginner 3 years ago

Thanks


Sachin 3 years ago

Good info shared bro, i wouldn't have found all these in one single post. Thanks for sharing!


Raju 3 years ago

Really really really useful thanks

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