Think
Let us see the impact of tax and inflation on the so called “SAFE” Fixed Deposits.
| Bank Rate | Tax Rate (%) | Tax Adjusted Return | Inflation (%) | Net Returns |
|---|---|---|---|---|
| 9% | 0% | 9.00% | 10% | -1.00% |
| 9% | 10% | 8.10% | 10% | -1.90% |
| 9% | 20% | 7.20% | 10% | -2.80% |
| 9% | 30% | 6.30% | 10% | -3.70% |
Inflation is the most under-estimated economic parameter while making investment decisions. It works like a treadmill. Even though you feel you are moving you have actually made no progress.
Inflation and FD returns will go hand in hand.
So if one is expecting inflation to come down then automatically interest rates are bound to come down.
Like in the US where inflation and interest rates both are around 2 %.
Also as you move up the tax slab your net returns are bound to get negative as shown in the table.
Inside of greed of taking 1-2% higher returns we many a times risk the entire Principal amount by opting for Company FDs.
It is advisable to make sure that your so called ‘Safe’ investments don’t get risky in the longer run standing in the background of wealth creation.
Think !!!