Bank Shares Vs Bank FDs

Banks are giving your money at higher interest to others as loan. To elaborate, when you put Fd in any of the bank, they lend some of your money to certain retail or corporate. For example you are doing an fd at 8%, bank pays you fix rate of 8% and against that they lend the same money in housing loan / personal loan/ car loan / mortgages etc.,

The interest rates are approx 9% to 22%, depending upon the nature of loan.

So if you calculate, banks are paying 8% on fd and lending the money at 12-15%. The spread after expenses or after taxes will add to the balance sheet profit  for the bank and the same reflects in the bank share prices sooner or later. I know it is not at all fixed, but the example is here with us, HDFC Bank has grown 30% quarter on quarter since many years, now also its growth is approx 25% qoq,

This simply says that banks are making money on your money?

Don't you think ? Its advisable to invest in Bank Stocks rather than putting an FD in the same Bank ?

So you think Your Portfolio is Doubled ?

Your money got doubled ? 

If someone feels their money gout doubled ? Again have a look at your portfolio....i mean entire portfolio, with real estate, bank fd, ppf,epf,gold, company fd, stocks, etc.,

Indian investor is having less than 3% in equity, i do not say that, actaully this is an actual figure in india.

People in india are risk averse, are you kidding ? 

Risk averse? Lots of corporates where indian retail investors are putting their money in FD's are not repaying their capital also. But as the interest rate looks attractive at 11%,12%, etc., they feel they will get more returns, but they are not ready to understand or not aware that it is a credit risk they are taking to get an extra mile of just 2%.

Now coming to the point, as our debt like PPF, FDs and other company deposits are giving 5%,6% or 7%,8% returns after tax, i am just reminding you about inflation which is around 9-10% today.

Some people feel they have 20 lacs in PPF that will take care of their retirement, is it ? 

What if government reduces PPF rates to 7% in coming future ? I am not saying it will happen soon. But gradually it may happen and it will impact the full balance on your ppf account.

Say for example if you have 20 lacs in your PPF and it adds 1.6 lacs in your ppf considering 8% annual return, now if interest rates comes down to 7%, it will add 20k less, ie. 1.4 lacs and that too every year as you can not withdraw the full amount till it gets matured, so your money gets locked up at lower percentage which you have never thought of in your life. I do not say people should avoid PPF, but they should understand interest rate risk.

The only asset class which beats the inflation is equity across the world in last 25 years.

So if you think your one lac rupees in equity is now two lac and you have 20 lacs in ppf. In this scenario i do not feel any significant impact of wealth increase happened in your portfoio.

Now imagine the reverse, twenty lac in equity porfolio and if gets doubled ? The choice is entirely yours.......think it......and start understanding equity.....time in the equity market is only important.