We Indians largely believe in the adage that slow and steady wins the race. One evidence of this is our penchant for fixed deposits in banks where we get a steady, certain interest rate. Taking the macro India figures, around 60% of our financial savings are invested in fixed deposits.

However, investments in fixed deposits do not beat inflation generally. For example, the interest rate that State bank offers on it's 1 year Fixed Deposits (FD) is 9.25% while the food inflation is above 10%. So if you invest Rs 100 today and get Rs 109.25 after 1 year, how much is the value of your money if you factor in 10% inflation? It will be 109.25 x (100 - inflation)% = 109.25 x 90% = Rs 98.325. This essentially means that the value of your money has gone down!

But another way of looking at it is that by taking unknown risks, you could have lost the entire Rs 100/- !

Fixed deposits is for those who want to invest lump sum amounts at any frequency and at low risk and getting a fixed return as stipulated.