Fixed Deposit versus Vodafone Idea – Unveiling the Ultimate Winner

Fixed deposits are less preferred securities these days, especially by young investors. There are different investment avenues such as stocks, bonds, mutual funds, and commodities like gold and silver. However, elderly investors still prefer FDs for their investments, considering the safety of their capital. They believe that equities are risky, while FDs are safer investment options.

Neither are completely wrong nor completely right; it all depends on the age of the investor and their risk appetite. Using FDs as a diversification instrument and putting some money into them is not a bad decision at all.

Investing in equities requires a good understanding of macroeconomic and microeconomic factors, sectoral or industry trends, and specific companies within those sectors along with their peer comparison. Finding a good company can potentially yield returns over 100 times the investment. Conversely, selecting bad stocks can erode capital if not invested wisely and corrective actions are not taken timely.

In this article, we are going to compare what if an investor had invested Rs 1 lakh both in FD and Vodafone Idea a decade back would be the returns today.

Returns Battle

Vodafone Idea

Vodafone Idea is one of the prominent telecom service providers in India, following Jio and Airtel. Currently, the company is experiencing losses, whereas a decade ago, it was a profit-making firm. In FY17, it posted a net loss of Rs 400 crore for the first time, which increased over tenfold the following year, reaching a high of Rs 73,878 crore in FY20. The company is still struggling to earn net profits.

Over the same period, Vodafone Idea share price was Rs 86.50 a decade ago. This decreased to Rs 16.75 after five years, and in the subsequent five years, it further declined to the current value of Rs 13.50 per share. This represents a drawdown of 81% in the following five years and eventually an 84.39% drawdown based on the current market price. Consequently, an investment of Rs 1 Lakh is now valued at only Rs 15,600.

Fixed Deposit

Fixed deposits or FDs, serve as long-term investment tools that assist investors in saving money over extended periods. Investors have the option to select a fixed tenure for the deposit to remain with the bank. Assuming the same amount of investment in an FD a decade ago with monthly compounding, it would accumulate to Rs 1,38,281 at an annual interest rate of 6.5%. In the next five years, it would be valued at Rs 1,91,218.

FDs Over Equity

FDs and equity investments represent two distinct paths for investors, each offering unique benefits and considerations. FDs provide a stable and low-risk investment option, ideal for individuals seeking to preserve capital and earn assured returns over a fixed period. With FDs, investors can rely on predetermined interest rates and the security of their principal amount, making it an attractive choice for those prioritizing safety and certainty in their investments.

Equity Over FDs

On the other hand, equity investments offer the potential for higher returns over the long term, with increased volatility and risk. By investing in stocks, investors become partial owners of companies and stand to benefit from capital appreciation and dividends. While equities entail market fluctuations and uncertainties, they also provide opportunities for wealth creation and inflation-beating returns. Furthermore, selecting good stocks with the potential to earn multibagger returns in the long term is an art and not an easy task. One simple mistake can significantly erode your capital.

Conclusion

The decision between FDs and equities depends on an individual’s risk tolerance, investment objectives, and time horizon. Some investors may prefer the stability and predictability of FDs, while others may favor the growth potential and diversification benefits of equity investments. In constructing a well-rounded investment portfolio, investors often weigh the merits of FDs for stability and income generation against the growth potential and long-term gains offered by equities, striking a balance that aligns with their financial goals and risk preferences.

Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.