I have Rs 2 crore in FDs—Why is that a bad thing? Reddit debate unpacks investment strategy amid market crash

The discussion comes at a time when India’s benchmark equity index, the Nifty 50, has extended its losing streak to eight consecutive sessions, tumbling nearly 16% from it’s all-time high of 26,277. With the index just 1,103 points away from officially entering bear market territory—a 20% drop from peak levels—investors are reevaluating their strategies, torn between stability and potential long-term gains in equities.

Inflation and erosion of wealth

The Reddit user, who claimed to have earned Rs 60 lakh in interest while paying Rs 6 lakh in tax deducted at source (TDS), sought expert opinions on why stock market investments might be better. Responses overwhelmingly pointed to inflation eroding purchasing power, taxation reducing effective returns, and fixed deposits failing to optimize wealth growth.“Two years ago, you could have bought 4 kg of gold with Rs 2 crore. Now, even with FD interest, you can buy only about 2.5 kg,” one user noted, illustrating how inflation diminishes real returns.

The opportunity cost of fixed deposits

Others emphasized the opportunity cost of sticking to FDs, which offer 6-8% interest compared to potential double-digit equity returns. “If inflation is 10% and you earn 5% post-tax, you’re actually losing money,” another Redditor explained, citing how the stock market delivered double-digit returns between 2020 and 2023.

Tax inefficiencies and liquidity risks

Tax efficiency was another major concern. “FD interest is taxed at 30% annually, whereas equities attract only 10% long-term capital gains tax upon withdrawal,” a user pointed out, adding that this deferral allows stock investors to compound wealth more effectively.

Liquidity risks and deposit insurance also came into focus. While FDs lock in funds for set periods, mutual funds and stocks allow investors to withdraw as needed. Additionally, India’s deposit insurance covers only Rs 5 lakh per bank, raising risks for those concentrating large sums in FDs.

FDs vs Equities

However, not all users dismissed FDs entirely. Some defended them as a stable, low-risk option, particularly for those with high capital and low risk appetite. “You won’t have to take the pressure of markets hitting lows,” one user reasoned, while another called FDs a suitable choice for preserving—not growing—money.

A top commenter summed up the dilemma: “Holding such a huge amount in FDs only benefits banks and the government, but erodes personal wealth over time. The only person who loses heavily is you.”

The user elaborated: “It gives banks power to issue about Rs 50 crore in loans to other people as avg CRR is 4%. They will guarantee only Rs 5 lakh of your FD in case the bank collapses someday. The government is happy because all the interest of FD is fully taxable and it gets a huge cut of your FD every time interest is credited. The only person who loses heavily is you—you lose to inflation. Two years back, Rs 2 crore could buy 4 kg of gold, but today it barely buys 2 kg. Imagine what will happen in 20 years.”

While FDs remain a staple for conservative investors, the discussion highlights a fundamental trade-off: security versus growth. With the Nifty 50 on the verge of a bear market, risk-averse investors may take comfort in FDs, but Reddit’s finance-savvy users appear to favour equities for long-term wealth creation.

Also read | Nifty 1,100 points away from official bear market zone: Time for greed or fear?

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)