FD vs Equity Comparison
Compare bank FD returns with stock market indices
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Yr
| Asset | Rate | Value | Gain |
|---|---|---|---|
Bank FD | 7% | ₹7.01 L | +₹2.01 L |
Nifty 50 | 12% | ₹8.81 L | +₹3.81 L |
Nifty Midcap 150 | 15% | ₹10.06 L | +₹5.06 L |
Nifty Smallcap 250 | 17% | ₹10.96 L | +₹5.96 L |
Opportunity cost of FD: You miss out on ₹3.95 L by choosing FD over Nifty Smallcap 250 over 5 years.
Bank FD
Nifty 50
Nifty Midcap 150
Nifty Smallcap 250
FD vs Equity: Understanding the Trade-offs
Fixed Deposits and equity are the two most common investment choices for Indian investors. FDs offer safety and guaranteed returns, while equity offers the potential for significantly higher long-term wealth creation. Understanding the real cost of choosing one over the other \u2014 after accounting for taxes and inflation \u2014 is crucial for making informed financial decisions. This calculator helps you visualize the difference over your chosen time horizon.
Frequently Asked Questions
Should I invest in FD or equity in India?▾
The choice depends on your investment horizon and risk appetite. Fixed Deposits offer guaranteed returns of 6-7.5% with zero risk, making them ideal for short-term goals (1-3 years) or emergency funds. Equity investments (stocks and equity mutual funds) have historically delivered 12-15% CAGR over 10+ year periods in India but come with short-term volatility. For goals 5+ years away like retirement or children's education, equity typically outperforms FDs significantly after adjusting for inflation.
How much do Fixed Deposits earn after tax and inflation?▾
At a 7% FD rate with a 30% tax bracket (applicable for income above ₹10 lakh), your post-tax return drops to approximately 4.9%. With inflation averaging 5-6% in India, your real (inflation-adjusted) return from FDs is often negative or near zero. This means your purchasing power barely grows with FDs over long periods. In contrast, equity returns of 12-15% leave a meaningful positive real return of 6-9% even after accounting for taxes and inflation.
What is the opportunity cost of keeping money in FDs?▾
The opportunity cost is the difference between what you could have earned in equity versus what you earned in FDs. For example, ₹10 lakh invested in FD at 7% for 10 years grows to approximately ₹19.7 lakh. The same amount in Nifty 50 at historical 12% CAGR would grow to approximately ₹31 lakh. That is an opportunity cost of over ₹11 lakh. Over 20 years, this gap widens dramatically due to compounding — FD gives ₹38.7 lakh while equity could give ₹96.5 lakh.
Is it safe to invest in equity for the long term in India?▾
Historical data strongly supports long-term equity investing in India. The Nifty 50 has never delivered negative returns over any 8-year rolling period since inception. Over 15-year rolling periods, it has delivered a minimum CAGR of approximately 8% and an average of 13%. While short-term drawdowns of 20-40% are common (2008, 2020), patient investors who stayed invested recovered and went on to earn strong returns. Diversification through index funds or large-cap mutual funds further reduces risk.
How are FD and equity taxed differently in India?▾
FD interest is added to your taxable income and taxed at your income tax slab rate (up to 30% + surcharge). Banks also deduct TDS at 10% if annual interest exceeds ₹40,000 (₹50,000 for senior citizens). Equity taxation is more favorable: long-term capital gains (shares held over 1 year) above ₹1.25 lakh are taxed at just 12.5%, while short-term gains are taxed at 20%. Dividends from stocks are taxed at your slab rate. This tax advantage makes equity more efficient for wealth creation.
What is the ideal allocation between FD and equity?▾
A common rule of thumb is to subtract your age from 100 to get your equity allocation percentage. A 30-year-old might keep 70% in equity and 30% in debt/FD. However, this depends on your personal risk tolerance, financial goals, and existing liabilities. At minimum, keep 3-6 months of expenses in FDs or liquid funds as an emergency buffer. For long-term wealth creation, allocate the majority to diversified equity through SIPs in index funds or well-managed mutual funds.