Why Should You Not Follow Your Grand Parent's Financial Advice?

In the present-day context, when even pagers have becomes a passé, would you accept a wired telephone if someone gave it to you for free? Probably not! With smart phones taking the world by storm, there is no reason why you should be stuck with a wired telephone or a pager for that matter. Financial trends are no different- some come, others go. And when you have the choice to go for the most advanced options, clinging on to age-old means of savings makes absolutely no sense.

When the Reserve Bank of India, made the revelation that close to half of the households in India have their savings stashed in fixed deposits, you probably cringed. But that is the bare reality. A large majority of people in the country still refrain from direct equity, mutual funds, and life insurance. The reasons may be varied but the most obvious one seems to be the element of risk involved.

Haven’t you seen your grandparents advocate fixed deposits? In fact, if you carry out an examination of their financial portfolio, you will see that almost all of their financial assets are either sitting in their savings account or are locked into fixed deposits. You understand, there have to be reasons for the same, but you have probably not cared to figure them out. Here, we tell you why your grandparents devoutly love FDs, and how profit-yielding they are.

FDs as an investment option

There is no denying that fixed deposits were and are a rage among people. And it’s not just your grandparents but also your parents and probably some of your peers who see more upsides in FDs than downsides. They are trusted and have been of value to so many people for so many years now. But there are aspects that probably remain unattended amidst all the hype and hullabaloo around FDs. We are talking about aspects like returns and inflation. This is an open secret that rising inflation can have devastating effects on FD returns. And with times changing, an FD investor is likely to face dual setbacks of high inflation and low profits- stunting financial growth.

Yes, your grandparents say, FDs are safe, but now you know the safety comes for a price.

Are equity funds the solution?

Largely yes! If you want to see a boost in real returns, opting for equity doesn’t look like a bad idea. But one thing that needs to be kept in mind is that equity investments may be risky over short terms. Hence, opting for a long term investment would be the best bet. Are equities right for your needs? Yes, of course! More so, if you are young. In such a case, your goals are farther in the future and their fulfillment would require long term investments alone.

Let’s delve deeper and try to analyze a real life scenario, here. If your grandfather invested INR 5,000 some 25 years back, he would probably have around 65 lakh today at his disposal. If, however, he had invested 85% of his total savings on equity shares, the return would have been a whopping 1.35 crore by now. Tempting? Why not!

If you don’t have funds for making direct investments, going for mutual funds isn’t a bad idea either. Your grandparents couldn’t have told you this because they haven’t experienced the benefits themselves.

So, yes, your grandparents and parents swear by those rigid FDs, but there is no reason why you should follow suit. Your financial decisions, after all, are going to set examples for your children and grand children. So, make them wisely.