Fixed deposits back in vogue as crypto, stock market get hit by global headwinds

• FDs are seeing a higher traction now that crypto and the stock market are volatile.
• Bitcoin hit an 18-month-low point last month as the price dipped below $20,000.
• As other investment avenues remain choppy, money is chasing safer options to live fixed deposits.

Not very long ago millennials investors were taking a dig at ‘baby boomers’ for keeping fixed deposits (FDs) on a pedestal. After all, crypto and stock investments offered stellar returns.

But the tables seem to have turned now that the cryptocurrency has been plunging for quite some time, causing losses to many investors. Bitcoin — the world’s largest cryptocurrency — hit an 18-month-low last month as the price dipped below $20,000. The currency was priced at $22,287.10 on July 18 versus an all-time high of $68,000 it reached in November 2021.

Siddhartha Bhaiya, managing director and fund manager of Aequitas Investment Consultancy, also took a jibe at the current situation, saying “Crypto holders are future fixed deposit holders.” Not sure about cryptocurrency investors, but banks and non-banking financial companies (NBFCs) have started seeing more interest in fixed income products like the FDs.

Fixed deposits are getting an edge

Rachit Chawla, founder and CEO of Finway Capital, told Business Insider that the FDs are seeing a higher traction now that crypto and the stock market is underperforming. He noted that crypto and equity asset classes are currently on a downward trend after hitting an all-time high only a few months ago, and this has made the investors more skeptical about its future.

“They all are hoping and visualizing that there may be further corrections in all the asset classes. Hence, they have split their investments into fixed deposits also. So in case it [market] goes further down they can utilise the same amount of capital [they invested in FDs] and reinvest in equity,” he explained.

He also noted that the investors who did not pull out their capital from crypto and equity markets at the right time have already taken a hit and want to avoid any further loss. “Basically when greed is there, people actually jump on. People think that it [markets] will continue to go up… But now people are being a little conservative. Hence, the rise in fixed deposits,” he noted.

Chawla also noted that this is not a new phenomenon. “Whenever equities crash, generally there is a rise in fixed deposits because people become a bit conservative,” he added.

But it is not a full proof strategy either

Fixed deposits are not wealth maximizing products. Even though Axis Bank, SBI, IDBI Bank, DBS Bank, Citibank and Canara Bank, to name a few, have increased their fixed deposit rates, the customers are still losing money without realising as inflation is growing at a much higher pace.

The value of the capital being invested in fixed deposits is also being eroded because of the high inflation rate, Chawla added.

“The only time you should move out of equities and start parking funds in FDs is when you are nearing your financial objective or goal. Further, taking out money from equities at this point when many investors are looking to participate more in equities here onwards may not be a prudent strategy," Harshad Chetanwala, investment adviser and co-founder of MyWealthGrowth, said.

But crypto is not all well either

Well no one knew that Nirmala Sitharaman would come out with a rug-pulling revelation only a month later that the Reserve Bank of India (RBI) wants the government to “regulate” and “prohibit” crypto in India. Not that crypto was doing any better before this.

A survey by Indian crypto exchange WazirX revealed that four in five traders have slowed down their investments in cryptocurrency since the implementation of a new tax. The company’s survey — involving 9,500 respondents — found that one in five crypto traders are considering shifting their trading activities to international exchanges.

After all, all profits from crypto are currently taxed at a flat 30% rate, which is the highest tax bracket and the same rate as lottery winnings. The government also mandated a 1% tax deducted at source (TDS) on all crypto transaction redemptions, even the ones that make a loss.

So, for example, a person who buys a crypto asset at ₹10,000 and sells it at ₹12,000 would show a profit of ₹ 2,000 and pay 30% tax, which is ₹600. In terms of TDS, if you had bought Bitcoin worth ₹10,000 and sold it at the same price without any profit, you would get back only ₹9,900.

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