Do you still invest in Fixed Deposits!?

Do you??

If you are in the Income Tax ka top bracket of 30% Tax rate, do you know that your average Fixed Deposit is actually de-growing your money???

Does this sound like a shock to you???

See, suppose you invest in a Fixed deposit that gives you 9.50% interest rate per year and you are in the 30% Income Tax Slab you actually approx 33% as tax(with surcharge & education cess) on the interest which is added to your yearly income.

If you invest in your Bank FD of 9.5% please simply understand that 33% of that interest rate will be income tax that you will have to pay.

So when you deduct 33% from 9.5% your return amounts to 6.36%. Effectively that is what you get in hand.

Do you know what is current inflation?

Well the Government of India has announced Cost Inflation Index(CII) for the year 2014-2015 at 1024, to simplify it at 10.24. Which means last year the prices of things went up by 10.24%

In layman terms, if you bought 1 kg daal in Rs. 100/- today, you will need Rs. 110.24/- to buy the same daal next year.

Average CII for the last 5 years is 862.

Bottom line is if you did not make 8.62% post tax deductions you are actually de-growing your money.

Okay so now do I have your attention???

If yes, please raise your hands and then in the next post we look at how to make more than the 8.62%, the one good news I can share is the Government will give you indexation benefits and make you pay no tax on any income you earn below the CII if you invest in the instruments that the Government wants you to invest in!! 😀 😀 😀


18 thoughts on “Do you still invest in Fixed Deposits!?

  1. Vaayadi Pennu ;) says:

    Does that mean I should not fix my money in the fix deposits.. is that the bottomline Dhiren… if it is I understood.. but the jargon need to be familiarize ya! I don’t like this fix deposit funda waise bhi.. blocks off a chunk of money for a period of time! am I a little finance literate.. see student one present

  2. Bikramjit says:

    Oh yes my hand is up rather both of them.. I had no clue … so are you saying that all that money that I put in fixed after selling idd thw shop I had.. is actually losing money. .

    But when xompared to uk where the interest rate is a mere 1% or if you are lucky 2% .. I still feel india has better interest rate..

    Now sir you got to explain this..what do I do with that chunck of money ..

    • hitchy says:

      FD’s are a useful instrument not saying no to it. But it is not the a to z of investments na? Its just the A… we have to move further ahead!

  3. confusedhumanity says:

    fd is perhaps the simplest way to invest….i don’t understand financial jargon and all these share marketing/mutual funds are too much confusing..real estate seems so off the fd it is 😦

    • hitchy says:

      Thats the essence of writing this post… simple is not always nice… well if you enjoy de-growing your money good luck to you! I guess we must all take some time and try to de-mystify investments… I will try to avoid the jargon and explain in as simpler means as possible.

      Stay tuned for the next post on Monday.

    • hitchy says:

      Mandira simply put, Interest earned on Fixed deposit is an income. Means it has to be added to your income, if you do not do so you are evading tax.

      Banks will deduct TDS on your FD only after the interest goes above 10k. However, if your interest is below 10k you still have to include it in your income when you file returns. Many do not do so, which is basically evading tax and they could land into trouble when a scrutiny is raised. Even the interest we earn on savings bank money is an income and must be added into our income whilst filing returns! 🙂

    • hitchy says:

      We advisor community have a saying that Banker’s are the worst people in managing their money… I think banking and investing are pretty much two different topics and not really related!

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