Are FDs really back?

Summary

The video reviews short-term investment options and checks in on people’s goals from the previous year. It defines “short term” broadly as a few months to around three years and emphasizes considering risk, liquidity, taxes, and the investment horizon. It also notes that no asset is entirely risk-free.

Fixed deposits (FDs)

The video compares four types of deposit providers:

• Public-sector banks: Described as relatively safer and generally offering lower rates.
• Private banks: Often more competitive on rates. The video says they manage risk through RBI rules and a broad customer base.
• Small finance banks: May offer higher FD rates because they lend to higher-risk or underserved areas.
• NBFCs: May offer attractive rates but are described as carrying relatively higher risk. The video says bank deposit insurance does not apply to NBFC deposits.

The video states that DICGC deposit insurance covers up to ₹5 lakh per depositor per bank, across the depositor’s combined accounts and deposits at that bank—not just FDs. It says this insurance applies to banks, including small finance banks, but not NBFCs.

Advantages: FDs offer a known term and rate, are easy to open, and can help move money out of a savings account.

Disadvantages: The rate is locked in, so an investor may miss out if rates rise. The video also highlights tax on FD interest, arguing that an FD renewed or realized annually can trigger tax each year at the investor’s income-tax slab rate.

Liquid funds

The video describes liquid funds as investing in debt instruments with maturities of up to 91 days. It presents their short lending horizon as a reason their risk is relatively low. It also says tax is triggered when the investor exits, rather than annually as described for FDs, allowing returns to compound before tax is paid.

Arbitrage funds

The video explains arbitrage using the same company trading at different prices on the NSE and BSE. Its example uses Tata Motors priced at ₹100 on one exchange and ₹102 on the other: a fund manager buys at the lower price and sells at the higher price, expecting the prices to converge.

The video characterizes arbitrage funds as relatively lower risk and says they are taxed like equity, citing 12% long-term capital gains tax if held long enough.

Debt funds

For short-term goals, the video discusses:

• Low-duration funds: Invest in papers with maturities of 6–12 months; suggested for goals in that timeframe.
• Short-duration funds: Invest in papers with maturities of 1–3 years; suggested for goals in that timeframe.

The video says both are taxed at the investor’s income-tax slab rate and recommends matching the fund’s duration to the goal’s timeline.

Framework and practical guidance

The video’s suggested decision process is to:

1. Define the goal’s time horizon, from a few months to roughly three years.
2. Consider the risk involved and how quickly the money may need to be accessed.
3. Compare FDs, liquid funds, arbitrage funds, and duration-matched debt funds.
4. Use the linked spreadsheet calculator: make a copy, then enter the investment amount, lump sum and/or monthly contribution, start and end dates, tax slab, and risk appetite.
5. Avoid leaving money in a savings deposit if inflation is eroding its value, while balancing the goal of inflation-beating returns against taking too much risk.

The presenter gives an example calculator scenario of ₹3 lakh, including a ₹90,000 lump sum, a ₹5,000 monthly investment, and a three-year horizon. They clarify that an SIP is a systematic monthly investment method and is not limited to equity.

Numbers, cautions, and disclosures

• FD insurance cited: ₹5 lakh per depositor per bank, across eligible deposits and accounts.
• Liquid-fund instrument maturity: 91 days or less.
• Debt-fund duration ranges discussed: 6–12 months for low-duration funds and 1–3 years for short-duration funds.
• The tax rates and treatment quoted in the video—including the 12% equity LTCG figure—are time-sensitive. Investors should verify current rules rather than rely on the video’s figures.
• No explicit “not financial advice” disclaimer appears in the subtitles.

Assets and instruments mentioned: Fixed deposits, recurring deposits (RDs), savings deposits, liquid funds, arbitrage funds, low-duration funds, short-duration funds, debt instruments or papers, equity, and bank deposits.

Company and exchanges mentioned: Tata Motors, NSE, and BSE. No ticker symbols are stated.

Presenters and source: The main presenter is unnamed in the subtitles; office participants appear in the discussion. Source: Zero1 by Zerodha.