Over the years, the union government and stock market institutions such as the NSE and BSE have tried their best to educate retail investors and loosened regulations to attract them to equity investing. These initiatives have succeeded to some degree and helped to increase the popularity of equity investing in India.
The idea was to stop the typical Indian investor, who was forever looking for safe investment options, from overly relying on gold, real estate and fixed deposits and invest more in equities, mutual funds, ULIPs and other market-linked instruments.
However, after decades of effort, the majority of retail investors still prefer FDs over most other investment instruments. The SEBI Investor Survey of 2015 reported that more than 95% of Indian households preferred fixed deposits over mutual funds, equities and pensions schemes. While FDs were the best investment plan for Indian families, insurance was second on the preference list followed by gold, post office savings and real estate.
Despite the entire hullabaloo over new and sophisticated investment instruments, FDs still constitutes 58% of all bank deposits in India. It proves that, to the typical Indian investor, the safety of his money is sacrosanct and he would rather sacrifice returns for safety.
Why FDs are more relevant than ever
Though after demonetisation, fixed income instruments such as FDs had lost favour among investors, recent decisions by the Reserve Bank of India (RBI) and the sops provided by Budget 2019 have made fixed deposits more attractive.
In the last 12 months, fixed deposits and gold have performed better than stocks, real estate and mutual funds. While FD’s gave a return of 6.5%, gold generated returns of 7.1% in 2018. If you had invested in a fixed deposit available on Finserv MARKETS, your one-time investment would have fetched you returns up to 8.7% during the same period. During the same period, stocks, real estate, and equity and debt mutual funds gave a dismal performance.
Rate of return since Jan 1, 2018 in %
Source: Business Today
The performance of several mutual funds in 2018 effectively eroded the wealth and confidence of investors in the market rushing them to the safety and security of gold and FDs.
Hike in TDS limit on interest earned
Budget 2019 increased the tax deducted at source (TDS) limit on interest earned from FDs to Rs. 40,000 from Rs. 20,000. It meant that if your annual income is below 5 lakh, you don’t have to pay tax on interests earned up to Rs. 40,000.  Even if your income is above Rs. 5 lakh, it lowers your tax liability. There was a spike in fixed deposit investment after these changes were announced.
Protection from volatility
While equity mutual funds and stocks have witnessed extreme volatility in recent times and even seen returns falling down to negative, fixed deposits and gold have outshone and outperformed the market to provide consistent and risk-free returns.
An economic slowdown, uncertain market conditions and weak market sentiments have no impact on fixed deposit interest rates since they provide guaranteed returns. Undoubtedly, a fixed deposit is the best investment plan for a conservative investor, but it is also a great way to diversify the portfolio during volatility for a smart investor.
Flexibility and liquidity
While other safe investment options that come with guaranteed returns have long lock-in periods, fixed deposits offer high flexibility and easy liquidity. You can invest in an FD with a tenure ranging from 1 week to 10 years but at the same time, you can liquidate the same in any emergency situation. Alternatively, you can also take loans with the fixed deposit as collateral up to a certain specified amount. FDs can be a one-time investment in a lumpsum or you can opt for monthly contributions by opening a recurring fixed deposit.
The Indian investor’s preference for safe investment options is not entirely unfounded. Equities have consistently shown extreme volatility over the years and the current Indian financial market condition is anything but positive. While the private investor is faced with a dilemma in today’s volatile and uncertain market conditions, fixed deposits make more sense than ever before.
If you want to tide over the present uncertainty, a fixed deposit is your best investment plan. Invest in a fixed deposit available on Finserv MARKETS and get high returns up to 8.7% with highest stability and safety of CRISIL FAAA and ICRA MAAA ratings with a one-time investment.
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