Arti Arora, CFP | Head Financial Planner

Where have you been investing lately? Which has been the most rewarding investment that you have made? How do you decide between available investment options? What are the parameters against which you judge your investment performance?

The list of questions is endless but we need to stop with the hope that the above questions trigger you to think, analyse and act.

The bank fixed deposits have been the most favoured investment avenue for more than 70% of all Indians, totalling more than 75 lac crores in deposits. The irony is that the post-tax and post inflation returns of these very fixed deposits is actually negative so you are not earning any real interest on these. This is an empirically proven fact and not something to discern with. To make this situation even worse is that fixed deposit rates have fallen in this financial year with rates on the 1-3 year deposits now below the 6% mark with inflation having gone up simultaneously.

On the contrary, the share market indices, both Sensex and Nifty completed a whole circle from first nose diving and then seeing recovery at a steadfast rate. Gold, too has been another asset class that has rallied upwards in last 1-2 years.

This is not to advocate one asset class and rule out the other but a point in favour of asset allocation and prudent investment advice. Bank fixed deposits are only one part of the debt universe and there are other avenues like short-term debt funds, credit risk funds or even GILT funds that have performed exceptionally well in the given time frame. There is some associated risk with these variable debt investments and the price of taking that risk is the higher return that one earns.

Returns and Risk always go hand in hand and while we will delve deeper on this in our next week’s edition, a realization that putting our hard earned money to work for us can make a difference to our lives is essential. Wealth creation has never happened and can never happen if one doesn’t follow a well deduced and systematic approach to our finances and review it timely. Both variables of the approach being well-found and timely reviewed are important here due to the dynamicity of the financial markets. Only those who seek out will find a way and only those who act in time will reap its fruits.

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