‘The biggest psychological comfort zone’: CA on why your FD may be quietly hurting your wealth

Saving money often feels like the safest way to protect your financial future. For many Indian households, Fixed Deposits have long been a trusted choice for preserving hard-earned money. But when it comes to building long-term wealth, guaranteed returns may not always tell the full story. CA Nitin Kaushik has highlighted how inflation, taxation and missed market growth can make excessive dependence on FDs costly over time, using a simple comparison involving Rs 1.2 lakh and a 10-year investment period.

CA Nitin Kaushik compares FD returns with equity

CA Nitin Kaushik took to X and described the Fixed Deposit as the “biggest psychological comfort zone” for Indian households, while arguing that it can also stagnate net worth. According to Kaushik, many investors associate guaranteed returns with safety. However, he pointed out that once inflation and taxation are taken into account, a 7% FD may deliver considerably less in real terms. He used a hypothetical Rs 1.2 lakh investment to explain the difference.

If Rs 1,20,000 were placed in a 10-year Fixed Deposit offering 7% interest, compounded quarterly, the amount would grow to roughly Rs 2.36 lakh to Rs 2.40 lakh. By comparison, Kaushik said the same Rs 1.2 lakh invested as a lump sum in a Nifty 50 Index Fund ten years ago would have grown to around Rs 3.72 lakh. The comparison highlights how the length of time money remains invested can influence the eventual corpus.

Why the SIP comparison looks different

Kaushik also compared the FD with a Rs 1,000 monthly SIP over 120 months, bringing the total investment to the same Rs 1.2 lakh. He noted that such a SIP would have ended up in a similar range to the FD over this particular decade. The reason, according to his explanation, is that the money was invested gradually rather than being exposed to the market as a lump sum from the beginning.

With a monthly SIP, only a portion of the total capital is invested at any given time. This means less money would have participated in the market's strongest early gains during the period being compared. Kaushik therefore stressed that the larger difference in his example comes from the lump-sum comparison rather than the SIP.

FD offers stability, but equity offers growth potential

The central point of Kaushik's comparison is that an FD and equity serve different financial purposes. An FD provides a fixed return, while equity allows investors to participate in the growth of businesses and the wider economy. Kaushik also pointed out that banks use deposited money for lending, including to businesses that may borrow at considerably higher rates. He cited interest rates of around 12% to 14% in this context, arguing that the bank captures the spread while depositors receive the predetermined FD rate.

However, he clarified that this does not make Fixed Deposits useless. According to Kaushik, FDs have a specific role in financial planning, particularly for:

• Capital preservation
• Emergency funds
• Short-term financial goals

The problem, he suggested, arises when a product designed primarily for capital preservation is treated as the main vehicle for long-term wealth creation.

The inflation problem with ‘safe’ returns

Kaushik's argument also centres on purchasing power. A 7% FD may appear attractive when viewed only through its headline interest rate. But if inflation is around 6% and the investor falls in a 30% tax bracket, the effective growth in purchasing power can be significantly lower. This is why Kaushik described the idea of guaranteed returns as something investors can mistake for genuine financial safety.

For long-term goals such as retirement or funding a child's foreign education, he argued that relying entirely on a product designed to preserve capital may limit the potential for wealth to compound. His comparison puts the difference into perspective. Rs 2.4 lakh in an FD versus around Rs 3.7 lakh in the Nifty 50 example represents a gap of roughly Rs 1.3 lakh over a decade.

‘The greatest risk isn’t market volatility’

Kaushik argued that investors often focus heavily on the temporary ups and downs of the stock market while overlooking another form of risk: losing purchasing power over time. He described the cost of excessive safety as the “wealth that never compounded” because investors avoided temporary market volatility.

In his view, the distinction is straightforward: stability can be useful for money needed for regular expenses, emergencies and short-term requirements, while long-term wealth goals require consideration of growth-oriented investments. Kaushik ultimately framed the issue as a choice between protecting money for near-term needs and allowing suitable long-term capital the opportunity to compound.

For investors, his Rs 1.2 lakh comparison illustrates why looking only at the guaranteed return on an FD may not provide the complete picture of long-term wealth creation.