Fixed Income Fixation: Is Too Much Safety Putting Your Money At Risk?

For decades, Indian households have followed one golden financial rule:
“If it’s guaranteed, it’s good.”

Fixed deposits, PPFs, LIC endowments, NSCs — these have long been the go-to investment choices for millions of Indians across generations. And understandably so — these instruments offer capital safety, predictability, and peace of mind.

But here’s the uncomfortable truth in today’s economic reality: Too much dependence on fixed income products can be silently hazardous to your wealth.

The irony? By trying to stay safe, you could actually be risking your financial future.

Comfort trap

There are strong emotional and cultural reasons behind India’s fixed income obsession:

Trauma of past scams: Harshad Mehta and Ketan Parekh created a generation of risk-averse investors.

Elders’ influence: Our parents and grandparents built wealth through LICs, FDs, and real estate.

Fear of markets: Equity is still seen as “gambling” by many middle-class savers.

Assumption of security: “At least I won’t lose my capital” becomes the benchmark for decision-making.

While these beliefs may have worked decades ago, the math doesn’t hold anymore — especially when inflation and longevity are factored in.

Real-life example

Take the case of Mr. Iyer, a 55-year-old school principal from Chennai. He retired in 2020 with a ₹60 lakh corpus. Out of caution, he placed:

₹40 lakh in fixed deposits (earning ~6% pre-tax)

₹10 lakh in a traditional life insurance plan

₹10 lakh in savings account as buffer

His monthly interest income came to ~₹20,000 — enough initially, but slowly, inflation started to bite. In just 3 years, his lifestyle expenses rose to ₹30,000 per month.

Today, he's dipping into principal. By age 70, his capital may run out — despite “playing it safe.”

Had he allocated even 30–40% of his corpus into balanced hybrid or conservative equity mutual funds, his income and capital could have both grown.

The risk

Let’s break it down:

Inflation erosion: If your FD gives 6% and inflation is 6.5%, your real return is negative. You are losing purchasing power even while feeling “secure”.

Tax bite: Most fixed income returns are fully taxable as per your slab. So if you're in the 30% bracket:

FD at 6% = 4.2% post-tax

Debt fund (indexation over 3 years) = potentially 5.5–6% post-tax

Living longer than your corpus: Thanks to better healthcare, Indians are living longer. A person retiring at 60 may live till 85–90. That’s 25–30 years of post-retirement funding needed. With rising healthcare, utilities, and basic cost of living, fixed income alone cannot carry that burden.

Risky equity?

Yes — in the short term. But in the long term, equity reduces risk by beating inflation and compounding wealth. Historical data from Indian markets shows:

Nifty 50 has delivered ~11–12% CAGR over 15+ years

Balanced hybrid funds offer ~9–10% CAGR with less volatility

Equity saves you from the stealthy killer: capital erosion via inflation

The real risk isn’t volatility — it’s not having enough money when you need it.

Real safety net

True financial safety lies not in avoiding risk altogether — but in diversifying smartly across asset classes.

Here’s an example of a well-diversified allocation for a conservative investor:

This structure offers:

Growth (equity)

Stability (debt)

Liquidity (emergency)

Inflation hedge (gold)

You’re not abandoning safety — you’re upgrading it.

Cost of inaction

We often hear people say:

“FD is at least safe.”

“Market ups and downs are scary.”

“I’ll wait till retirement and then think.”

But here’s the cost of that comfort:

Smart investing

Understand your real needs: Are you investing just to feel safe — or to actually achieve goals like retirement, child education, or wealth creation?

Adopt goal-based planning: Instead of focusing on products, focus on outcomes.
Ask: What do I need in 5, 10, or 20 years?
Then build a plan using the right mix of equity, debt, gold, and insurance.

Reframe ‘risk’: Risk isn’t about short-term fluctuation — it’s about whether your money will meet your future needs. Equity reduces that risk over time.

Get professional advice: A registered financial advisor can help build a portfolio suited to your life stage, risk appetite, and goals. Think of it as paying for peace of mind.

Final thought

Fixed income is not the enemy — but over-dependence on it is. Your money must not just be safe — it must also grow. Because in the long run, what feels “secure” today may be silently shrinking tomorrow. The future belongs to those who balance caution with courage, safety with strategy, and fixed income with financial wisdom.

Published on: Sunday, September 21, 2025, 07:30 AM IST