Should You Park Money In Fixed Deposit As Turbulence Hits Equities? - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Should You Park Money In Fixed Deposit As Turbulence Hits Equities?
Aug 14, 2019

Of all the investments instruments available, many Indians continue to favour the age-old bank fixed deposits (also known as term deposits) despite being a low-yield investment. As per the data from the RBI, term deposits grew from Rs 64 lakh crore in June 2017 quarter to Rs 72.5 lakh crore in March 2019 quarter.

This is despite the fact that there has been no significant hike in fixed deposit interest rates. On the contrary, RBI cut policy rates on several occasions during the period. Consequently, banks too lowered the term deposit rates.

In fact, the safety of principal, guaranteed returns, and ease of investment makes FD the preferred investment choice for many Indians.

--- Advertisement ---
To Readers Who Plan on Quitting Work Someday…

Please read this only if you want to quit your regular jobs someday…and be independent of your income.

If that's not you – please ignore the rest of this message.

Because we have a simple goal in mind…to guide readers towards using the Double Income strategy.

A strategy that, over time, has the potential to bring in as much, or even more than one's regular income, every month.

And if you're interested, Rahul Shah is hosting 4 video classes between 17th and 24th September – to teach his readers how to use this strategy.

Sign up here.

Oh, and one more thing – these classes are completely free for Equitymaster readers.

But we have limited seats available – if you're interested please sign up as soon as possible.

Once your seat is blocked – you won't run the risk of missing out, and you can decide whether to attend or not.

Click here to sign up – it is completely free, and there are no forms to fill up.

But should you consider FDs for long-term wealth creation?

The equity market has been going through a turbulent phase in the last one and a half year while the debt market too has been rife with defaults and downgrading of credit ratings. As a result, many SIP investments have given negative returns over the past two years. The volatility may continue for a while before it starts an upward trend, which is why some investors may think of moving to a stable investment avenue like FDs.

Being a low-risk investment, FDs can be considered for your short-term liquidity needs and to park your contingency fund. However, since the returns on FDs are quite low (around 6.5-7%), it is not a suitable choice for long term wealth creation. In the current calendar year 2019, the RBI has till now cut policy rate cumulatively by 110 bps. Therefore, there may be further cuts in FD rates in the future.

If you are old and nearing retirement, it makes sense to invest in safer avenues like FDs. Senior citizens can benefit from the 50 bps higher FD interest rates. But if you are younger, you may be able to handle higher risk options to earn better returns. Thus investing in diversified equity mutual funds should be your preferred choice.

The Double Income Project: Free Registration

Even though markets are prone to volatility, mutual funds are your best bet for long-term wealth creation. Mutual funds have the potential to generate much higher return than FDs over a period of time, if you select the right scheme. They are more effective in countering inflation and meeting your set target.

With mutual funds, you can select among the various schemes from different categories based on your investment objective, risk appetite, and investment horizon. However, FD investment does not provide that flexibility.

To get the maximum benefit of investing in mutual fund opt for the systematic investment plan (SIP) route. When you invest via SIP, instead of a lump sum amount, you are investing a fixed amount regularly regardless of the market conditions. This enables you to get the benefit of low investment cost and the power of compounding. Additionally, it helps tackle volatility to some extent.

It is important that you select the mutual fund for investment diligently. The fund you select should match your risk profile and must help you achieve your financial objective as per the time horizon you have set.

First, you need to evaluate the consistency of the scheme's performance based on quantitative and qualitative parameters by comparing it to its benchmark and category peers. Second, shortlist the scheme that has performed consistently well compared to its benchmark and peers. The schemes selected through this process can generate high alpha over long-term and help in wealth creation.

Once you have selected the scheme after proper research stick to your investment and do not be bothered by market noise. Sell your investment only if it has been consistently performing poorly or if you have achieved your financial goal.

It is also crucial to have a personalised asset allocation based on your age and financial circumstances. Invest in a mix of assets that provide capital appreciation and capital preservation.

--- Advertisement ---
Rs 4 Trillion Opportunity?

In this One Stock Crorepati Video, Richa Agarwal, Research Analyst and Senior Editor, reveals details of a 'crorepati' stock.

In short, it's a little-known Indian company, which is now tapping into a Rs 4 trillion industry.

You see, right now, few people are aware of this 'crorepati' stock's involvement in a massive Rs 4 trillion industry.

But word will soon spread and it might not remain a secret for long…

After that, you may have to pay a much higher price for this very same stock.

That's why we urge you to watch this video right now where Richa Agarwal reveals the details of this stock.

This video could be pulled out anytime…So don't delay it for any reason and make sure you watch it right now.

Click here to know the details of the Crorepati stock…

Assets like equity mutual funds can enable capital appreciation, while traditional investments like FD and provident fund can aid in capital preservation. Young investors should keep a higher allocation towards assets that help in capital appreciation over a period of time. As you age, gradually increase your allocation towards assets that enable capital preservation.

Editor's Note: To find the best funds with high alpha generating potential, we have developed a 'SMART Alpha Score' model. It has an additional categoriser on top of our popular 'SMART Score' process.

With optimum weightage to each parameter, which we consider important in identifying fundamentally strong funds with the potential to generate alpha, this model helps us zero in on quality names that have the ability to trump the benchmark and generate alpha returns for the long-term investors.

And in our latest exclusive - The Alpha Funds Report - 2019, we have identified five high alpha generating funds selected through PersonalFN's special 'SMART Alpha' methodology.

Author: Divya Grover

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Should You Park Money In Fixed Deposit As Turbulence Hits Equities?". Click here!


More Views on News

The Silver Lining in Disruptive Businesses podcast (Views On News)

Sep 18, 2019

The positive side of technological disruptions and rebound opportunities in blue-chip stocks.

Do You Hold These Worst-Performing Equity Mutual Fund Schemes In Your Portfolio? (Outside View)

Sep 18, 2019

PersonalFN explains what you should do if you hold non-performing funds in your portfolio.

Fed Up of the Bad Real Estate Market? Here's a Stock You Can Buy Today (Profit Hunter)

Sep 18, 2019

This tough period for most companies in the realty sector has been a blessing in disguise for one branded real estate player.

How Rahul Shah Helped Me Recommend Hindalco Which Doubled in Six Months (The 5 Minute Wrapup)

Sep 18, 2019

Rahul Shah's contrarian approach was the key reason behind my successful Hindalco call.

Did the Saudis Bomb Their Own Oilfields? podcast (Views On News)

Sep 18, 2019

Drone attacks on Saudi oilfields and what it means for oil prices.

More Views on News

Most Popular

Buying these Eight Stocks is Like Owning Your Own Business (Profit Hunter)

Sep 5, 2019

Everyone dreams of owning a business. Here is your chance.

7 Stocks to Buy in the Market Today (The 5 Minute Wrapup)

Sep 5, 2019

The stock market had a four-year bull run starting September 2013. Are we seeing a similar pattern now?

Buy these 7 Stocks if You Believe in India (The 5 Minute Wrapup)

Sep 12, 2019

News headlines predict gloom and doom for India these days. You should ignore them.

A Recession Proof Stock You Can Bet On (Profit Hunter)

Sep 10, 2019

Usually, the typical horizon period for my smallcap recommendations is 3 to 5 years. But if you ask me, this could be one business that you could own and pass on to future generations.

This Company Will Do Well Despite the Slowdown (The 5 Minute Wrapup)

Sep 11, 2019

How financial inclusion provides a big runway for this stock recommendation.


Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Sep 18, 2019 (Close)