Think FDs are safe? You’ll be surprised what financial planners recommend Instead; check details

When it comes to managing your hard-earned money, choosing the right investment vehicle can be a daunting task. Each financial product—be it Fixed Deposits (FDs), Mutual Funds, Non-Convertible Debentures (NCDs), Real Estate, or Gold—has its own strengths and pitfalls. Financial planner Fakhre Alam believes the secret to smart investing lies in understanding the unique risk-reward profile of each instrument and tailoring choices to one’s personal goals.

“Investing isn’t just about chasing returns,” Alam said. “It’s about aligning your money with your time horizon, your risk appetite, and your liquidity needs.”

Return potential

FDs are often the first choice for conservative investors because they offer fixed, predictable interest. However, Alam warns that they may fall short of beating inflation, especially after accounting for taxes. “While FDs give stability, post-tax returns can erode your purchasing power over time,” he noted.

Mutual Funds, on the other hand, provide market-linked growth and are ideal for long-term wealth creation. “Equity and hybrid mutual funds can deliver higher returns than FDs, but they come with market risks,” Alam explained.

NCDs sit between FDs and mutual funds in the risk-return spectrum. “Well-rated NCDs can offer higher returns than FDs, with moderate risk,” Alam said, emphasizing the importance of checking credit ratings before investing.

Real Estate has long been a favorite for Indians seeking both rental income and asset appreciation. However, Alam cautions that it demands significant capital outlay and is heavily location-dependent.

“Gold, while not generating income, preserves value and acts as a solid hedge against inflation,” Alam said. “It’s especially useful during economic uncertainty.”

Liquidity Matters

Liquidity is another critical factor when choosing investments. “Mutual Funds and Gold are highly liquid, allowing easy entry and exit,” Alam noted. In contrast, real estate requires considerable time and effort to sell, making it one of the least liquid assets.

FDs and NCDs do permit early exits, but investors might face penalties or reduced interest rates. “Always read the fine print before investing,” Alam advised.

Risk Profile

FDs are among the safest investments but deliver the lowest returns. “They’re perfect for capital preservation,” said Alam. Mutual Funds carry market risks but offer diversification opportunities. “A good mutual fund portfolio balances risk and return,” he explained.

NCDs offer a balance between safety and returns if carefully selected. Real estate, while generally stable, is subject to price fluctuations based on location and market cycles. Gold remains safe over the long term, though its price can swing significantly in the short term.

Tax Considerations

Taxation often impacts net returns. “Interest from FDs and NCDs is fully taxable as income, which can eat into your gains,” Alam warned. Mutual funds and real estate, however, may offer indexation benefits that reduce long-term capital gains tax liabilities.

Who should invest in what?

Alam recommends tailoring investments to personal circumstances. For a moderate investor, he suggests a diversified allocation:

30% in Mutual Funds (equity and hybrid)

20% in secure, short- to mid-term NCDs

20% in FDs for capital preservation

20% in Real Estate or REITs for long-term growth

10% in Gold or Digital Gold as an inflation hedge

“There’s no one-size-fits-all solution,” Alam said. “The key is to blend stability with growth. A diversified portfolio can give you peace of mind and long-term wealth creation.”

As Alam puts it, the ultimate goal of investing is simple: “Grow your wealth while sleeping well at night.”