Absolutly , this is the bottom line and legal binding . Rest is our belief and down weighting the Risk.
Things always happening for the first time, how low the probability is.
I am sure everyone here knows what I am writing here, but I could not resist the temptation of writing about FDs.
Fully accept that Gsec is more secure than fD as well.
However the flexibility that an FD offers is as follows
- FD is one instrument which I can open any time of the day (online), Not sure if Gsec is available at face value on any day. I can walk into any bank in India and open a FD, there is no limitation.
- FD can be closed anytime of the day (online) and the capital is credited to the SB account immediately. When a FD is closed, the bank will give interest for the period it has run minus penality whilst for NRE deposits, no interest is paid if the fD is closed within one year. So it will always be Capital plus interest if you close.
- Interest rate is locked for the duration of the term deposit. Assume if the FD is opened in 2022 and interest rate increases next year. I can always, close the FD and reopen the same with a higher interest rate. There will be no capital loss. Not sure if this flexibility is available in Gsec. Of course you need to compute if this is advantage or not
- SIP can also be done. This is Recurring Deposit. A small amount of money is invested every month and you get the principal plus interest on maturity. Yes bank has a product which is called flexi recurring deposit. In this product, instead of a fixed amount which goes to the RD, it will be upto the customer to put the amount. There is no restriction on the fixed amount. Of course there are restriction, but a great product.
- SWP can also be done - SBI has one FD where every month a portion of interest and principal is paid out.
- You can avail an OD against an FD with 1% to 2% interest rate over the fD rate. The amount can be used for any purpose. Gsec, I am told, I am not sure, is available for trading limit.
- FD is absolutely free of cost, no need to pay for brokerage, mutual fund fees etc unlike gsec.
- FD has the advantage of payment of interest on monthly, quarterly and on maturity.
- I read a lot of people talk about 5 lack insurance. Yes this is absolutely correct, but if the customer parks the money in one of the too big to fail bank such as SBI or Icici, the chances of these banks failing is a possibility but the RBI will do something to ensure that the depositors money is protected. They did to Yes Bank, if they can do it for yes bank, then SBI is a given.
- In a worst case if SBI fails and goes under, not only the depositors will go under but the stock market will have an impact as Banks meets the entire requirement of an economy. If users have this fear then no point in investing in stock market as this will fall too
- Government in the past had recapitalised the PSU banks heavily during Raghuram Rajan period. This is what happens, when they feel that the bank is going under.
The above are the facts and hence worrying about 5 lack insurance limit when you park your money with SBI is kind of stretching it. I am no way saying it cannot fail. It can, but it will be rescued as there is no other option but to save. Print money and save.
Apart from the facts, few other things you get with Bank FD.
- You get Christmas Plum cake during December - This is mainly in Kerala, not sure if this is followed in other states. Got two plum cake from two banks.
- If you have deposits and you walk into a bank, you are the king of good times, you only talk to manager and not to anyone else (just joking). This is the trend in Kerala, Banks go out of their way, to welcome NRI customers visiting their home state. However, there is a caveat, open an account with a small branch and not in Mumbai. You are a king only in a small branch.
- IDFC first bank gives me Amazon Prime subsciption and Airport lounge (not that I use the airport lounge).
Many talk disparagingly about Bank FD, but the truth is that millions of people have invested in fD and it has stood the test of time.
And now I canât resist replying to each point. 
. But I will only respond to points where you have mentioned that you arenât sure.
Instead of gsec letâs go with gilt.
Can buy it anytime but there is cut off time and you may get NAV of the next day. If you buy on saturdays then you will get NAV of Monday.
Can be closed anytime. Again proceeds of the same will get credited only on the next day.
There is interest rate risk with Gilt.
I just have to redeem when I need funds. Itâs not for a fixed duration. If OD is taken for a longer duration then you are paying interest for your own money. Like you keep 1lakh at 6 percent and take loan at 7 percent. If are keeping it for long duration you are losing 1 percent for using your own money.
I got a flag delivered to my house on the Independence Day. Lol. Things a banker has to do.
Cakes are not healthy. So in addition to FD affecting my wealth, itâs also affecting my health. 
(Definitely on a lighter note)
Do they ? I didnât know this. I have an account with them for 2 years now.
You get it with credit and debit card too. Mine goes unitised most of the time.
Ah. I get 2 movies tickets per quarter too. I guess it buy one get one free.
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Insights are very detailed, and you seem to know a lot about it.
Still you canât say that wealth is destroyed ^
If the money is not invested in FD and not invested anywhere it would have been destroyed at 6% [actually its more], because of FD it is getting less destroyed [-2% according to you]. Thatâs another view of looking at it, thatâs what Iâm trying to say.
People who know beyond FD will always invest in better options.
My bank treats me like a nobody 
, sometimes they even forget and close the bank while i am still there.
Maybe you all have multi crore deposits.
Please brother next time take me with you.
@Jason_Castelino @Gnome @shoebham
Truly enjoyed reading your comments.
On a serious note @Jason_Castelino can I buy gilt or gsec at the original price. If a gilt has a face value of 100 (as an example) can I buy this at this value, if so how. NAV is the market determined rate - right?
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Just nit picking, but i guess i disagree on below.
Things happen, its not given, its not secured . Perhaps exceedingly unlikely but depending on the circumstances when it happens you donât know what will get done. If for whatever reason whole country/banking system is under stress, they may restrict their benevolence by having max limits. So most get covered but if you have any decent capital invested you might not recover all. Just speculation.
Anyway, banks these days in India are probably much better off now vs previous stress in last decade.
If taxed, we save peanuts and lose cashews ( @Jason_Castelino prefers cashews⌠)
Equity is volatile. In this case, SBI equity holders will suffer more than FD holders certainly, probably lose all. But other than that, any fall in index and other diversified baskets will likely only be temporary. Whereas any loss in FD will be permanent.
FD is fine, esp if diversified within large good banks. Its just that other options can be better in terms of security and post tax returns (if taxed).
By gilt you mean gilt funds?
While I have no experienced purchasing them, but they are volatile. One expects capital protection here, and not returns.
My query was cant a user buy a specific gilt not a fund. I mean, a specific gilt series and not a fund which has many gilt series. Hope its clear.
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 traderâs 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
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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.
No. You will be buying it at its current market price only. If it was available at face value donât 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 itâs already answered below. Wonât 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 familyâs funds from FD to Gsec
- 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 lifeâs savings.
- 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 itâs fair value only since itâs at NAV. When a fund buys they will do all their calculations to see if itâs fairly priced. Honestly over a long run it wonât even matter much. Arenât 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 wouldnât 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 canât compare FD with other debt funds. Even though they give higher return they have higher risk as well.