Even today, most of the country’s population invests in fixed deposits, because people consider it a safer means of investment. Indians deposit more than 60 percent of their domestic savings in Fixed Deposits. But are you becoming poor by investing here or are your wealth decreasing? A wealth manager says the same.
Wealth manager Khushi Mistry has raised some questions in her LinkedIn post, which will surprise you. In one of his posts on FD, he said that fixed deposits are the ‘biggest trap of hidden money’. His argument is that FD seems safe, but keeping inflation and taxes in mind, the actual return from it is often negative.
How are you becoming poor?
In her post, she writes that if you get 7% interest on your FD and inflation is running at the rate of 6%, then your return will hardly be 1%. Whereas if you fall in the 30% tax bracket, then the return after tax reduces to only 4.9%, which is quite low with rising inflation and lifestyle. If seen from this perspective, you are gradually becoming poor.
Suppose ₹10 lakh invested in FD in 2010 is equivalent to ₹20 lakh today, but in the same period, gold would have given returns of ₹40 lakh, Nifty 50 more than ₹50 lakh and real estate would have given returns of ₹30-50 lakh. Wealth expert said that this is not instability, it is a matter of taking risk.
Insurance in FD only up to Rs 5 lakh
The illusion of liquidity in FD is another trap. FDs can be both inflexible and frustrating due to early withdrawal penalties and outdated rates, and while many people believe that FDs are fully insured. Actually only ₹5 lakh per depositor per bank is provided protection by DICGC. Corporate FDs offer zero insurance.
The expert clearly said that FDs are not bad, they are just used excessively. She says that it should be used for emergency funds, short term targets and senior citizens who want capital stability. This is not for depositing long term funds. She writes that the biggest financial risk today is not market instability, but the illusion of security.
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