Bank Fix
Deposit: How much safe…?
Whenever I
met my investors and friends, I have seen a lust for fix deposit in all of them
almost all time. Many times I have experienced that people do the fix deposit
in banks with very confidence. In our country, people have high degree faith in
banks. They consider it very much safe. In the view of safety, they may be
right but there are also other important aspects associated with your investment which you ignore
many times. I am not saying that you should agree with my views but at least
try to understand what I want to say here. In this article we will discuss all
aspects associated with bank fix deposit.
Safety: Till now you know or understand that all money
deposited in banks are safe. Please update and correct yourself only amount Rs
1 lakh insured by the banks regardless whatever money you have deposited in
banks. It means if you deposit Rs 10 lakh fix deposit in your banks and in case
of any bad events occur with bank will be liable to pay only Rs 1 lakh.
Now you
will argue that the bank will never bankrupt in India. Please remember 2008
events in US, even more than 100 years old banks had got bankrupt in that year
so nothing is impossible in financial world.
Return: We Indian always much concern about safety not
return. When we say return then your focus should be on net return after
deducting tax and inflation effect. We many times ignore inflation and taxes and
blindly do the fix deposit at the published rate by banks or corporate.
Here I
take example of one of my friend for much understanding about net return. My
friend Ashutosh has done fix deposit of 10 lakh with bank for 1 year at 9%
return offered by the banks. My friend comes in 30% tax bracket. After 1 year
when his fix deposit became mature he had got Rs 10.90 lakh. Now he has to pay
30% tax (ignore other taxes for calculation) on return so after deducting tax
Rs 27,000 now the amount in his hand remain 10.63 lakh. After deducting tax his
return was 6.3%. If inflation in that year average remains 8% then his net
return become negative -1.7%. It is the real picture of your fix deposit
whether you believe or not. Inflation is real culprit which eats your
significant part of your return.
Goal: Always associate your each investment with a
specific goal and make plan according to your near and long term plan. If your
investment does not generate net positive return then it cannot fulfill your
goal. Investment without planning ultimately will not give you a satisfaction and
you will always confused about investment and will do some mistake during
investment.
There are
many other options available to fulfill your goal in the market. Keep in mind
that at least your investment should generate positive return after considering
tax and inflation.
If you want more information
regarding investment or you need investment services, feel free to ask us.
Warm regards,
Arvind Trivedi
Certified
Financial Planner
