Why am I suggesting people not to go for fixed deposit type of investment and to go for other forms of investment?
Here is the answer that I can provide them based on some basic fundamentals in finance. Let us make one point very clear regarding fixed deposit. In this kind of investment, the amount is blocked for a certain period of time and when the time matures the investor can withdraw his money. The rate of interest they give on the amount will be around 6% per annum. It doesn’t means that the investor purchasing power has increased by 6%. To calculate the investor purchasing power, we need to deduct the inflation rate for that period of investment. In recent times, the inflation rate is around 5% and so the net/ real interest rate the investor gets in fixed deposit kind of investment is 1%. Let’s get to the numbers. If you invest Rs.100 in fixed deposit for a period of 1 year with 6% roi and 5% inflation rate, the real value that you get after one year is Rs.101 (106-105).
Now, we should see the benefits that we can reap in other kinds of investments. First of all, to clear the myth equities/shares is not the only other investments available to get a good value for your investments. There are commodities market, derivatives market, Futures & Options, foreign exchange market and not to forget the mutual funds. As the old saying goes, who ever take the maximum risk, he is the one who reaps maximum benefits. So think big and invest cleverly!!
PS: At the end, it is that you need to demarcate your investments and surely should invest in fixed deposit some part to hedge the other kinds of investments as they come with some risk factor.
Here is the answer that I can provide them based on some basic fundamentals in finance. Let us make one point very clear regarding fixed deposit. In this kind of investment, the amount is blocked for a certain period of time and when the time matures the investor can withdraw his money. The rate of interest they give on the amount will be around 6% per annum. It doesn’t means that the investor purchasing power has increased by 6%. To calculate the investor purchasing power, we need to deduct the inflation rate for that period of investment. In recent times, the inflation rate is around 5% and so the net/ real interest rate the investor gets in fixed deposit kind of investment is 1%. Let’s get to the numbers. If you invest Rs.100 in fixed deposit for a period of 1 year with 6% roi and 5% inflation rate, the real value that you get after one year is Rs.101 (106-105).
Now, we should see the benefits that we can reap in other kinds of investments. First of all, to clear the myth equities/shares is not the only other investments available to get a good value for your investments. There are commodities market, derivatives market, Futures & Options, foreign exchange market and not to forget the mutual funds. As the old saying goes, who ever take the maximum risk, he is the one who reaps maximum benefits. So think big and invest cleverly!!
PS: At the end, it is that you need to demarcate your investments and surely should invest in fixed deposit some part to hedge the other kinds of investments as they come with some risk factor.
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