FDs or Fixed Deposits have been a great hit in previous decades. There was a time when FD generated a return of 12-13%. This was the reason why people were so attracted to making investments in FDs, as not only it was generating this many returns but also a low-risk investment. However, as things changed, so did the returns provide by fixed deposits.
➢
Why is FD not an Inflation Buster?
Inflation is known to be a bug that irritates everyone and dampers the savings
of individuals. The reason behind this is that it directs to a loss of the
currency value.
For instance, you have invested 10 lakh for 10 years and you come under a high tax bracket, now considering the offer of Banks FD which is 5.4%, you will end up generating a post-tax return of 4.4 lakhs only. Therefore, your 10-lakh investment will grow up to 14.4 lakhs!
However other investments like mutual funds have the potential to beat the inflation rate and generate better returns for the investors. Mutual funds have the capability to absorb the aftermath of rising in the inflation rate.
➢ What other alternatives are there for FD investors
The advancement of the Indian economy led
to the decline in the FD rates. Gone were the days when FD had given 12-13%
returns as today, it stands somewhere between 4.5%-5%. This ongoing fall in fixed deposits led the
investors to move ahead from this and look for better investment opportunities
providing better returns.
No investor wants to get a minimal return
on their investment, therefore, this is the reason for the sudden shift from
fixed deposits to other investments, like mutual funds!
FD was believed to be an investment that
was a low-risk investment, but there are other possible options too mentioned
below:
Debt Mutual Fund:
Debt mutual funds come with good returns
in hand. There are ample options where one could invest under debt mutual funds
like government bonds, corporate securities, or money market mutual funds.
Guaranteed Income Plan:
Guaranteed income plans, initiated by
life insurance companies provide guaranteed tax-free returns between
5.50%-6.25%. This return can come in any form be it an annuity or deferred
annuity or even lump sum maturity payments.
Dynamic Asset Allocation:
This Mutual Fund scheme is basically a
combination of equity+debt mutual funds. So what happens is that when the
market is high, the equity portion is kept at a low level and when the stock
market goes down then the equity exposure is increased.
Source View: https://www.fincart.com/blog/why-you-should-not-invest-in-bank-fixed-deposits-fd