In India, a large section of people invest in fixed deposits (FD). Some invest in post office FD while some invest in bank or NBFC FD. Annual returns on FD range from 6 percent to 9 percent.
But are these returns enough for your wealth creation? Regarding this, a CA has said that FD is like a ‘silent wealth trap’.
In a social media post, chartered accountant Nitin Kaushik has warned Indian savers about the ‘silent wealth trap’. He said that people deposit most of their money in fixed deposits (FD) without considering the impact of inflation and missed opportunities for development. Today FD rates are around 6.3-7% per annum, while inflation is around 2.1%. In such a situation, your real return becomes 4.2 to 4.9 percent.
10 lakh will give only this much profit in a year
CA explained how the real purchasing power of ₹10 lakh kept in FD increases to only ₹10.42 lakh after one year. Despite this limited profit, about 70 Indian families still consider FD as their first saving choice. Kaushik attributes this to the comfort of ‘guaranteed safety’, lack of financial education and market instability.
He warned that financial security in FD is good only as long as inflation is low. Suppose if inflation exceeds your FD returns, then the value of your invested amount will reduce over time.
If you don’t do FD then what is the option?
Kaushik suggested a balanced investment. He said that there is a need to diversify your investment portfolio. FD money should be invested in equities (estimated 12-15% CAGR), debt funds (6.5-8%), and inflation hedge funds like gold or other metals. He advised that one should not remain stagnant in the same asset class. This can reduce your wealth along with the risk.
Experts reiterate their concern that leaving money idle or limiting it to one safe option can reduce its ability to compound interest over time and reduce purchasing power. He says that building real wealth requires strategic diversification, periodic portfolio review and the will to adapt to changing market conditions.