I have a very weird problem and as much as it sounds hilarious, I am little under a spell of herd mentality myself I believe.
So my dad passed away back in 2004. His settlement around 10 lakhs was put in FD& TD. My mom did RD overtime made it 20 lakhs. Now with inflation high and interest rate less that is now under negative returns. Higher capital means more loss and it only makes sense to invest elsewhere or spend it. I have emergency back up fund and really a very simple guy going for job with saving and investing my earnings.
Now that 20L is going into real estate or some assets which is fine as it is appreciating but psychologically I am little unease seeing the balance and security it provided.
Has anyone felt this way or its just mind plays tricks?
FDs rates are cyclic in nature so over long run everything neutralise so don’t stress your brain over inflation and return. Your 1-2 years low returns will get companciated by high returns in future.
When interest rates at top that will surely happen in 1 -2 years, book a long term 10 years FD . So when down trend of interest rate comes you will benefit. So thats why in long term everything is neutralised.
I am no one to advise you or give you advise. However do not underestimate the value of FD. Not sure why you are so uncomfortable with FD. Any investor should have a diversified portfolio and FD should be a part of it and should be the foundation. Not sure if you were invested during march 2020 crisis when portfolio just sank and capital was eroded. It was those times the value of fd was realised. When it comes to FD people talk about of how tax inefficient the product is and blah and blah. They talk about negative interest rate after offsetting inflation. However I dont see people talk about these things when market falls. The concept of asset allocation includes fixed income as well.
Discl. I am a staunch supporter of FD from a bank and has helped my father, grandfather by providing an alternate source of income.
My earnings are invested(gold ETF, index fund, elss). I have 8-10 months emergency funds and insurances incase hospitalization.
It’s my mom that was handling my dad’s settlement and stuff though she had no equity but did some crazy levels of FD ,RD with multiple accounts which I barely paid attention. Only came to know after she said interest rate is terrible 5.5% and that entire money is in negative returns.
But when you have large capital liquidity at hand and you need to restructure portfolio like a wealth manager, mind plays insane level of tricks especially looking at your account.
Inflation adjusted returns are terrible in FD. Inflation is the one thing people don’t actually see. Negative interest rate are real. Higher the principal the worse it is in negative interest rate. Having 100% FD and RD as portfolio is worse too.
Now some people have said holding it long term or compounding will work as wonder. My problem is:-
You are holding it long term 10 + years assuming, its as same as holding a stock in which case the risk to reward ratio is terrible. It only makes sense to put some money as FD as emergency fund and put the rest in index fund or some other growing asset.
FD’s are not risk free as people think. The best rates are given by upcoming new banks. Having my family do FD for past a decade, one thing I can always say there is some amount of risk involved. PSU banks are relatively safe but their FD rates are not that good. So if you are putting FD in private bank there is considerable amount of risk. Yes bank was giving good FD interest. A year after our FD term got over and we closed the account , Yes bank scam came up and they announced moratorium. In LVB bank the scenario was little worse, People took Gold loan then when Gold sharply declined people thought what’s the point of paying back interest on gold when they got more money and defaulted causing problem in LVB bank. Then RBI stepped in and announced moratorium. Remember its FD ,banks really don’t have your deposit hidden secrets of money , so its kinda like debt fund. only big commercial banks get the RBI safety, for smaller banks or cooperative banks especially in rural areas, if they default then your deposit is gone. Remember PMC bank fiasco where people committed suicide after they lost life savings. Having an FD in a bank where moratorium is announced is no joke. Stock market recovers after 2 or 3 years but if you had deposit in banks like PMC your money is gone.
Unlike people think there is no safety even if RBI guarantees. IF banks defaults chances are you are screwed with losing with deposit or far worse I believe RBI literally prints note and gives your deposit back. Say you have 10 lakhs deposit and some 100 depositors including you lost deposit. The currency supply has shrunk only. Whatever other cash holdings you have still have value. Now if RBI says we will give money incase banks default, have you ever asked where did that money actually come from? Is that tax payers money? Heck no, the govt aint stupid to give tax payers money , majority of tax payers money goes for paying up principal +interest for govt bonds. To put it very short, What RBI really does is that it prints your 10 lakhs and others and deposits to your account. what you dont realise is that RBI has expanded its currency supply increasing inflation and silently stole PPP from all of you. So basically 10 lakhs deposit becomes 7 lakhs if you considered the inflation caused by bailout.
Because the 50’s parents still think of they are under some gold standard like the bretton woods system exists and educated the 60’ and 70’s parents that FD is the safest investment. 90 % of crowd is financially illiterate that they have not realized that nixon took us off gold standard during 1971 and all the central banks & govt spending have been silently stealing purchasing power since then, you all know this as inflation. The gen z like me and the gen alpha figured saw this pattern out that inflation(money printing) only profits asset holders like gold, real estate and mainly the stock market, so that’s why the craze behind stock market.
Though I have a RD opened and FDs, so I can’t say they are not good. But they have become a traditional way of saving money. People now-a-days prefer investing in stocks or mutual funds rather than opening a RD or FD account.