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In Sri Lanka, gold is not only an investment form, it is considered a status symbol in some cultures and is even believed to bring good fortune by many. This is why many Sri Lankans prefer investing in physical gold such as jewelry, coins, or gold bars instead of choosing other modes of investments like futures and exchange-traded funds. Many families prefer to accumulate gold and pass it on to future generations as part of their legacy.

Some of the other investment options that are preferred by Sri Lankan investors include real estate, fixed deposits, and the stock market since these are believed to yield better returns in the future. Real estate requires big investment whereas fixed deposits can be used for small investments.

Here, we will explore the distinct characteristics and benefits of gold as well as FD investments. Investors can look through some of the comparative points before making a selection between the two.

Why Should You Invest in Gold?

Apart from the cultural factor, gold is also considered a good diversification to an investment portfolio as it helps in reducing the overall risk. Many experts recommend about 10-15% of gold investment in a portfolio.

The biggest advantage of gold investment is liquidity. Investors like to invest additional funds in these if they can enjoy the flexibility to withdraw whenever a cash need arises. Hence, liquidity is an important feature offered by gold investments. People can buy or sell physical gold at any establishment that deals in this precious metal.

Why Invest in Fixed Deposits? 

A fixed deposit (FD) is a hassle-free investment tool offered at all banks. It guarantees a fixed interest, which is told during account opening. You can open it at any private or government bank. When compared with regular savings accounts, FDs offer higher interest. Easy opening, safe and fixed returns make them a popular investment choice among SriLankan. But currently, the interest rate is reducing compared to last year. It has dropped to a range of 10% – 14 %.

If you’re just getting started with investing, then FDs are a great option. You can choose a tenure ranging from 30 days to more years, regular Sri Lankan investors have relied on FDs to park their funds safely and to build the habit of saving for a rainy day. 

Gold vs FD:
What are the Differences?

Both gold and fixed deposits are considered low-risk-free investment alternatives. While the price of gold tends to be volatile in the short term, it has generated positive returns in the long term. It acts as a hedge against inflation and also currency fluctuations. When it comes to FDs, these offer guaranteed returns as per the prevailing interest rate and are not influenced by external factors. However, the returns generated from an FD depend upon the tenure chosen. The longer the FD tenure, the more returns can be generated. 
Rate of Return – Gold investments can generate a substantial rate of return in the long term. This form of investment is worthwhile since it provides inflation-beating results as per historical data.
Fixed deposits, on the other hand, offer fixed returns which are pre-decided by the bank at the time of opening the account. FD returns are guaranteed, no matter the amount deposited. Senior citizens can enjoy higher interest rates in FDs as compared to general citizens. 
Liquidity – Gold investment is a preferred choice among investors who are looking for easy liquidity solutions.

       While gold investment is liquid, returns on gold largely depend on market factors. Thus, investors must be well-versed in market conditions before trading in gold. Fixed deposit plans can be liquid depending on the financial institution that these are opened with and its policies.

While fixed deposits can be liquidated before the maturity date, many institutions charge a penalty for such withdrawals. In case an investor requires cash before the FD maturity, it is best to choose banks that offer a penalty-free liquidation of FD.

Loan Against Investment – Many banks and financial institutions offer a loan of approximately 80% value against gold and FDs. Investors can avail of a loan against fixed deposits and gold from banks and financial institutions. These are offered at very competitive interest rates.

Income Generation – Gold investments are ideally not meant to generate income. Gold can be looked at as an asset and can help in generating wealth in the long run. In the case of FDs, investors who opt for periodic payouts with monthly frequency can get monthly returns. This can help in short-term income generation as compared to blocked funds in the case of gold investments. 

Taxation – Returns from gold are categorized as ‘Capital Gains’ and investors can benefit due to indexation. However, interest earned on FDs is taxable as per the prevailing income tax rates. 

Conclusion :

Investors who are looking for long-term investments in gold can fetch higher returns and also save tax but are dependent on market volatility.
FDs can fetch comparatively lower but guaranteed returns and are generally not affected by market fluctuations. Before making an investment choice, investors must conduct due diligence and weigh their risk appetite against the chosen investment.

@GOLDCeylon 👉

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