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Kolkata: Over the past few years, thanks to a prolonged bull run, the returns of equity and mutual fund schemes have captured the imagination of not only the youth but of a large section of the Indian middle class. However, despite the euphoria of market-linked instruments investment strategists always point out that a significant portion of one’s portfolio should be in fixed-income debt securities. This is where FDs, or fixed deposits, fit in.

Crores of Indians have reposed their faith in fixed deposits in banks and NBFCs for many decades and the volatility in the stock market since October 2024 have got many Indians have a relook at the virtues of FDs. Though they are low-return, FDs are almost risk free. Therefore, they offer a balancing factor in any portfolio and provide security and stability. It is with this outlook, that investment experts recommend young persons to invest a part of their savings in guaranteed-return instruments such as PPF (Public Provident Fund) and fixed deposits.

Allocation can be up to 20%

Amidst the discussion on the utility of FDs, a prominent financial analyst has said not only that one can invest in fixed deposits but also that one could allocate up to 20% of one’s net worth in fixed deposits. “How much of your total net worth, do you think one should invest in Fixed Deposits i.e, Risk free-low return assets? For me, the number should NOT BE MORE THAN 20% for an age bracket of 20 to 40. The rest of the money is supposed to be invested in Equity, Real Estate & Commodities, depending upon risk taking capacity,” Nitin Kaushik, a CA, in his post.

Needless to say, the 20% is a ballpark figure. The situation and character of investors vary widely and each case is unique. The younger an investor is, the more pronounced is the tendency to take higher risks and invest in equity and equity-linked security. However, even at the same age and same income level, an individual can invest more in FDs if he/she is averse to taking risk. If one is completely averse to risk and puts safety of capital first, he/she can be seen investing a lot more than the 20% share suggested by the professional.

Relation between age and risk

It is seen that the more a person ages, the more risk averse the person becomes. A person with a lower risk appetite is prone to invest more money into fixed-income securities, and that’s why we see a very high proportion of retirees and elderly putting an overwhelming share of their post-retirement funds into bank FDs. It needs to be mentioned that the Deposit Insurance and Credit Guarantee Corporation provides insurance for deposits in banks up to Rs 5 lakh, says the rules of Reserve Bank of India.