Asset Leasing vs Fixed Deposits: Key Difference For Investing
Investing in fixed deposits (FD) is a safe and secure way to grow your money over time. However, it may not always be the most lucrative option for long-term investors looking to maximize their returns. Asset leasing is an alternative investment option that could provide better returns in the long run but involves risk.
Both of these investment options have advantages, but they differ in how you invest money and the expected returns. In this article, we will discuss what asset leasing is and compare it to FD. We will understand the critical differences between them to help you decide where to invest your hard-earned money.
What Is Asset Leasing?
Asset leasing is a financial agreement between two parties. The lessor (the one who owns the asset) allows the lessee (the one who rents or borrows it) to use the asset for a specified amount of time in exchange for rental payments.
Asset Leasing For Investors
Asset leasing can give investors an attractive return as the rental income is often higher than one would get with a traditional fixed deposit. However, it also involves risk, as there is always the possibility of default payments or even asset repossession if the lessee defaults on their loan agreement. Additionally, if you are considering investing in asset leasing, research and consider all risks before entering into any agreements.
Asset Leasing For Businesses
The purpose of asset leasing is to provide access to an asset that would otherwise be too expensive or difficult to obtain for the lessee. It is a type of financing that provides businesses with greater flexibility as they can lease assets on-demand without making large upfront purchases.
Additionally, it allows companies to avoid complications like depreciation, storage costs, and maintenance fees associated with owning assets outright. Leasing also helps them keep their balance sheets unencumbered by long-term debt.
What Is A Fixed Deposit?
Fixed deposits are a type of financial instrument provided by banks and other financial institutions where you put money aside for a set period at a fixed interest rate that will not change during that time.
Fixed deposits are an attractive option for people who want to make safe investments without worrying about market volatility. FDs are especially suitable for conservative investors who want to make long-term investments with guaranteed returns.
When you open a fixed deposit account, you will need to put in an initial amount of money and choose the term for which your money will be locked down. After this, you will receive a fixed interest at the rate based on the term that was chosen. It means that even if market conditions change, your interest rate will remain constant throughout the entire investment duration.
At the end of the period, you can withdraw your funds along with any accumulated interest earned over that time. Banks sometimes offer special features such as flexible tenure or recurring deposits to make FDs more attractive to potential customers.
However, it is important to note that fixed deposits generally have low liquidity as they cannot be quickly withdrawn without incurring penalty charges. Therefore, individuals should carefully consider their needs before investing in FDs and whether they would meet the financial investment objectives.
Key Differences Between Leasing Vs. Fixed Deposit
Differentiators | Leasing | Fixed Deposit |
Tenure | A lease is generally for a shorter period of time than a fixed deposit, usually lasting between 1-5 years.
| A fixed deposit can last anywhere from 6 months to 10 years. The rate of interest will vary based on the tenure you choose. |
Returns | The rate of return on a lease is usually high. It is determined by the finance company or bank offering the lease and can vary widely depending on the customer's creditworthiness and other factors. | Fixed deposit interest rates are generally lower and are set by the government or central bank in order to manage inflation. |
Risk | It involves higher risk. | It involves lower risk. |
Liquidity | A lease allows the investor to have access to the funds at any time without penalty. This makes it ideal for those who need instant access to their money. | FD requires investors to wait until the end of the term before they can withdraw their money. Withdrawal prior to that may result in a penalty being applied. |
Flexibility | Leasing has more flexibility when it comes to withdrawal. It allows partial withdrawals, or investors can withdraw all the money at once if needed. | FD is less flexible, as early withdrawal may result in penalties and forfeiture of accrued interest. |
Investor Persona And Their Ideal Investment Match
Different investors have varying financial goals and risk appetites that should be considered when looking at investment options.
For investors who prefer stable, low-risk investments with a fixed return rate, then a Fixed Deposit (FD) is likely the ideal choice. FDs have an assured return, typically higher than that offered by traditional savings accounts or low-risk government bonds.
Investors who are looking to invest in the short term and make a quick return on their capital may prefer leasing. It is typically considered lower risk compared to investing in equity while generating potentially higher returns compared to traditional investments such as FDs.
Leasing requires less commitment, as property can be leased for short-term or long-term depending on the investors’ financial goals. With leasing, an investor may have more flexibility in terms of adjusting their investments and managing risk. Additionally, they will also benefit from the regular income generated from rental payments.
The Bottom Line
In conclusion, weighing the pros and cons of leasing and fixed deposits is important when considering which option is right for you. Leasing can be advantageous if you can take some risk and earn regular returns. On the other hand, fixed deposits provide more security but require more upfront capital and a commitment for the selected tenure.
Ultimately, it comes down to what works best for your particular needs. By taking some time to research and understand these two financial strategies, you will be better equipped to make a beneficial decision for your future.
You can invest in FDs at public sector banks or avail of competitive interest rates along with additional features such as an overdraft facility against the deposit or sweep-in accounts at private banks.
Lease investing is available through alternate investing platforms. Grip leverages its extensive network of lenders across India to provide competitive terms and conditions on lease investments. It allows investors to choose from a wide variety of leased asset categories, including vehicles, agricultural machinery, and industrial equipment. You can access lease investments with terms ranging from three months to five years and earn good returns on your investment.
Grip also offers investors the added benefit of diversifying their portfolios by investing in multiple types of leases simultaneously. Additionally, Grip simplifies the leasing process by providing an automated application process that reduces paperwork and speeds up approval times.
Frequently Asked Questions On Asset Leasing And Fixed Deposits
1. What are the main differences between asset leasing and fixed deposits?
Asset leasing involves the owner of an asset (vehicle, equipment etc.) renting it out for a specified period and periodic payments.
Fixed deposits, on the other hand, is a type of investment where an individual deposits a lump sum of money with a bank for a set period of time at a fixed interest rate.
2. Which investment option, asset leasing or fixed deposits, offers better returns?
Asset leasing provides investors with attractive returns as the rental income is often higher than one would get with a traditional fixed deposit. However, it also involves a greater risk of default. High-yield FDs at Grip offer 2-4% higher returns than most FDs provided by banks along with the security provided by them.
3. How should I decide whether to invest in asset leasing or fixed deposits?
To begin with, evaluate your savings, assets and investments. Now assess your risk tolerance. While asset leasing can give you higher returns, they also come with greater risk compared to fixed deposits. Make an informed decision depending on your financial needs/goals.
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Disclaimer: This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip Invest Technologies Private Limited ("Grip", formerly known as Grip Invest Advisors Private Limited) is not registered with SEBI in any capacity and does not advise, encourage, or discourage its users to invest or not invest in any securities. Grip is solely an execution-only platform and does not guarantee or assure any return on investments made by you in any opportunities sourced by Grip and accepts no liability for consequences of any actions taken based on the information provided. Your investment is solely based on your judgement. Investments in debt securities are subject to risks. Read all the offer-related documents carefully.
