With guaranteed returns, do FDs offer a good investment bet to investors? Experts answer
Fixed deposits (FDs) are often seen as an epitome of financial security. You put your money in, and after a fixed period, you get it back with interest added to it. Sounds foolproof, right? However, there is an advantage of safety but the returns are not ‘high’ in the true sense of the word.
While FDs offer guaranteed returns, these returns are typically modest. In an era of rising living costs, the purchasing power of your money can diminish, leaving you with less than you started with in real terms.One of the biggest drawbacks of fixed deposits is their vulnerability to inflation. When the interest rate on your FD is lower than the inflation rate, your real returns are negative.
This means that while your nominal money grows, its actual value decreases. Over time, inflation erodes your savings, making fixed deposits a poor choice for wealth accumulation.
Shlok Srivastav, Co-founder and COO, Appreciate, says “Consider the fact that FDs by taking away the bite of volatility and market risks also stun your wealth growth. Over a shorter time frame, say a year or two, your FD might manage to deliver better returns than a diversified equity portfolio, especially if the market is going through a bearish spell.
However, equity returns more than compensate for the lost ground in the long run. Well-performing mutual funds give returns in the 12-15% CAGR range, miles ahead of FD returns. The returns from equities also tend to compound at a faster rate in the long term compared to FDs."By investing all your money into fixed deposits, you miss out on potentially higher returns from other investment avenues.
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