Why you should not invest in Fixed Deposit

Unfortunately gilt has become synonymous with long term gilt. We used to have short term gilt funds too where interest rate risk was minimal but after SEBI classification rules they have disappeared. Also gilt index funds with target maturity will have lower interest rate risk depending on maturity date ( but not nill ).
But anyway, as you know, there are different types of funds that can be used in place of FDs - safest being overnight funds.

Many people seem to prefer low/minimal risk of full capital loss + no risk of temporary M2M losses. I prefer opposite. Perhaps trader’s mindset.

Con - Interest will be taxable. Not a con if under tax bracket
Con - Potential Interest rate risk if buyer wants to sell capital before maturity. Can be a pro too if rates fall. Not sure of liquidity in exchange so that could be a con.
Pro - No fees to Mutual funds
Pro - No credit risk

1 Like

Yes debt products unlike many people think are also nuanced products. While there exist plain vanilla products with clear benefits and limitations, there exist a few products which are complex, and as such have to be looked at from capital risk, volatility, liquidity, taxation etc.

And yes, those short term gilts had a place, they were good.

They treat me like God. Even I do not know why.
I have recently opened a new firm with all my family members. I just called up one person whom I know from idfc bank for opening a current account.
In 15 mins he was in my office and gave me a complete checklist. Then next day I kept all originals ready. He came to office again, collected all originals, took photocopy of the same, took individual partners photos by coming to my house, went to photo lab and took photos. Then he only created a letter head for the firm and the common seal.
I really do not know what incentives they get for doing this.
This is just one instance.

Tell me which show you wanna watch and where. I will send you the tickets. :stuck_out_tongue_closed_eyes::stuck_out_tongue_closed_eyes:

No. You will be buying it at its current market price only. If it was available at face value don’t you think there would be arbitrage possible? If market price was below face value who would buy from market?

Not bad memory. I said it at least 6 months back.
On a totally different note, if you have to pick between the two and not pay for either, which one would you pick ?

A fund is much better than a specific one. As I was corrected earlier too, the expense ratio is negligible but the interest the fund receives will be reinvested. So there is no tax to be paid on that.
Just tax efficient.

Ah. I typed this out and it’s already answered below. Won’t backspace.

The duration of the bond is important. Lower the duration less risky it will be. Again not many understand these financial instruments. As an investment for long term it will outperform is all that I can say. Also I have mentioned earlier too that interest rates in india will only come down. Come on. Give it some years. We will see it below 2. And if it does the fund will easily give you 10 percent CAGR. I have not done any calculation here. Just know how much difference it makes. Basically, if you hold gilt fund for 10 years and you have FD for 10 years gilt will easily outperform by at least 2 percent. (Assuming your income is taxable)

If just one then peanuts. I eat peanut butter (plain) every day along with fruits and whole wheat bread. Along with some other changes, this resulted in decent weight loss for me ( just by chance, eating healthy can work … ). Fibre + protein is more in peanuts and that is filling.

One can argue that roasted cashews are healthy too and might be slightly tastier than roasted peanuts. So if its just one time i might as well eat those ( and i do once in a while). But for every day, its peanuts.

Still confused. I cannot buy it like I open a FD with a fixed capital. I need to buy this at the market price which could be at a premium or even at a discount. So how can this be compared to a FD. When I have money, and if the NAV is higher why would i prefer this.

Gsec are traded in cycles, once every 6 months when the interest is paid out - the premium dips. Thats when you have to buy

similarly time your sell accordingly.

thats the reason i said this. only in those 2 months of the year the Gsec liquidity goes up.

Also never place a market buy/sell order - it will ruin every hardwork that you would have done !

Understood. When this is the case how come gsec and treasury is being compared with FDs. The only feature being this is GOI backing. SBI is owned by GOI and FD have so much flexibility.

Gsec should be relatively new to most of them, it might take some time for mass market adoption.

There is an added benefit that the Gsec does not have a TDS cut for the interest payments unlike the FDs. Even if you are in the 30% slab.

There were 2 reasons why I shifted my family’s funds from FD to Gsec

  1. The societies, private trusts, small un regulated finance companies which offers interest rates like 8 to 12% were proving to be high-risk. Keeping the funds there was foolishness, many people have lost their entire life’s savings.
  2. It took me 2 to 3 months to learn how Gsec works - got a hand from @cvs too + gsec was immediately pledgeable for trading as liquid component.

And what if there is 100kgs of both in front of you. Which one which you pick. (Not buy)

When you buy a specific gsec then there are liquidity issues and interest is paid out periodically. So there is no tax benefit.
You should buy gilt fund. You will get it’s fair value only since it’s at NAV. When a fund buys they will do all their calculations to see if it’s fairly priced. Honestly over a long run it won’t even matter much. Aren’t you buying shares from market? Its the same over here.

Lower risk better return. Again am assuming that you are a tax payer. When you have one asset class with lower risk and higher return the other becomes inefficient.
If equity was giving 2 percent per annum return on average basis wouldn’t you say that you are taking higher risk and getting lower return than FD. If this is the case then equities become inefficient asset class. Risk and return should move in the same direction.
I can’t compare FD with other debt funds. Even though they give higher return they have higher risk as well.

haha, peanut saga continues. You are still thinking about this at 4 AM ? :slight_smile:

Now what will i do with this much at once ? It will go stale, so now i either need to give it away to people around me or to sell it off. In both case since cashews are valued higher, cashews it will be. I could also buy peanuts out of some of the proceeds and mix it with smaller amount of cashews.
If strictly for my own consumption, then nothing changes. I will still limit potions as these are high calorie things.
If you meant that diet restrictions are irrelevant, then as i said cashews are slightly tastier, never denied that.

I was partying till then and before sleeping am soooo used to checking replies here :rofl: :stuck_out_tongue_closed_eyes:

This is all that I was always trying to say. Strictly from Financial point of view we will chose the one which is valued higher irrespective of whether we need it or not. We can sell it off if we don’t need it and then buy what we need.

I never thought this would go this far. Now I even forgot the context in which I first used it. :sob::sob:

Very ironic isn’t it. But it only takes one or two guys neatly dressed in suits and boots with big big AMC name like Tata, reliance with big degrees to literally talk the same stuff in zerodha varsity and persuade them to buy their mutual fund where they won’t tell about fund managers performance & history, portfolio , expense ratio and how many times the fund has beaten the index in previous years. Their marketing is that brilliant that they will say things like they have experienced people that have great degrees and studied & graduated from god level Universites managing their money. They will also say big managers, senior managers, directors, advocates have all bought this mutual fund. Funny thing is this type of marketing works 99%.

But they won’t ever believe anything what we say🤣. I mean most of us fight with each other over asset allocation and use logical facts unlike marketing BS, but all of us have crossed the 5lakh networth mark , proven experience managing money and just an exam away to become RIA, but almost nobody would trust what we say. The irony!

1 Like

All our talk about indexation benefit is of no use now. Debt funds will be considered at par with FD when it comes to taxation.
@neha1101 happiest person right now. :sob::sob::sob:

Yeah. Seems like govt didn’t like this debate going one sided :joy:

Nothing changed for FD investors, and now ( if it happens) they will have no option to reduce impact of inflation by moving to Mutual funds.

Real rates post tax become lower for all, will probably stay negative. That’s not something to be happy about. Bad news for retired folks who cant take too much risk on their investments. I dont know what to say to anyone happy about this. Opinion more important than finances ?

Also MF may still be better as taxes are deferred and you can keep compounding. But will have to factor in expense ratio.

Glad i can trade.

If this reform comes into effect

then the retirees & Sr. people might redeem their debt funds now at 20% and then re-invest it some where else to save the 10%

Govt. looking at steep immediate tax revenue from the rejig :slight_smile:

1 Like

I think this is applicable only from 1st April 2024, and old investments are grandfathered.

On the contrary, people will hold on to their old debt investment, as they continue to get indexation, and invest more before 31st March.

are you sure that existing investments will not have new tax for redemption?

Nobody is sure because govt. has pulled out a rabbit from a hat, without giving out much details.
But that is what most news channels and MF CIO/CEO are reporting.

Also, generally such changes are prospective and not retrospective. Eg. When equity LTCG was introduced all old investment were grandfathered. So chances of that happening are high.
But need to wait from govt for clarity.