Even in 2026, one of the most popular investment options for millions of Indians remains the traditional bank fixed deposit (FD). It’s easy to see why. An FD offers predictable returns, capital stability and simplicity. With interest rates around 6% in many cases, investors often feel that an FD is a better option than equity, particularly when they see equity portfolios delivering disappointing returns over a short period.
But we need to ask an important question: Are we comparing FD and equity for the same purpose and over the same time period? That is where the real difference lies.
About the author: Vishnu M is a SEBI-registered investment adviser and a member of Fee-only India, a group of fixed-fee-only SEBI-registered advisors. He can be contacted via his website vishnum.in
Why FD can look better than equity
If you started investing in equity only two or three years ago, you may have experienced periods of volatility, corrections or disappointing returns. During the same period, your FD may have continued paying interest without any visible fluctuations. It is natural to conclude that the FD is the better investment.
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But judging equity’s long-term potential based on the last two or three years of performance can be misleading. An FD and an equity investment work very differently. An FD essentially provides a predetermined interest return for a specified period. Equity, on the other hand, is linked to a business’s growth and profitability.
What are you actually buying when you invest in equity?
When you invest in a company directly, you become a part-owner of that business. When you invest through an equity mutual fund, your money is pooled with other investors’ money and invested in a portfolio of companies. You are therefore indirectly participating in the growth of those businesses.
As businesses grow and become more profitable, their value can increase over time. But business growth is rarely linear. A company can perform well for several years and then face challenges because of competition, regulation, changing consumer behaviour, economic conditions or global events.
Its earnings may decline temporarily. Its stock price may fall. Investor sentiment may turn negative. Then conditions can improve, the business can recover, and growth can resume. This cycle can repeat many times during the life of a business.
That is why equity investing requires you to look beyond short-term price movements and focus on businesses’ underlying growth over a sufficiently long period.
The Nifty 50 is a good example
The Nifty 50 represents 50 major companies listed on the NSE and is commonly used as an indicator of the Indian equity market. During the 2008 global financial crisis, the Indian market fell sharply. Investors who looked only at that period would have found it difficult to imagine the levels the market could eventually reach.
Similarly, investors who entered the market around 2015–16 may have experienced relatively limited returns for several years before the subsequent market expansion.
Investors who entered around late 2019 or early 2020 experienced another dramatic event when the COVID-19 pandemic caused the Nifty to fall sharply. Similarly, investors who entered the market after 2024 have also experienced significant volatility, driven by war-related concerns and other domestic and global factors.
The important lesson is not that markets always recover within a particular number of years. The lesson is that short-term market performance does not necessarily represent the long-term potential of equity. Markets can fall sharply, remain weak for extended periods, and go through multiple cycles before businesses and the broader economy resume growth.
Equity is not a fixed-return product
This is perhaps the most important point to understand. Equity is not an FD with a higher expected return. You don’t invest in equity because it will give you a fixed return every year. You invest in equity because you want to participate in businesses’ long-term growth and potentially build wealth over a longer investment horizon.
That also means accepting volatility along the way. Your portfolio will fall at times. Some years may deliver little or even negative returns. There may also be periods of exceptionally strong performance. This is part of equity investing.
The right question is not “FD or equity?” Instead, ask: “When will I need this money?”
If you need the money in the short term, protecting capital and maintaining liquidity may be more important than chasing higher returns. Money required for an emergency fund, an upcoming house purchase or a near-term financial goal may not be suitable for taking significant equity risk.
But if the goal is several years away and you have the financial capacity to remain invested through market cycles, a well-diversified equity portfolio can play an important role in long-term wealth creation.
The investment horizon should influence the level of risk you take. Don’t let recent returns decide your long-term strategy. The Indian market will continue to experience periods of uncertainty. Domestic economic conditions, global growth, interest rates, crude oil prices, geopolitical events, corporate earnings and investor sentiment can all influence equity markets.
Some periods will be difficult. But that doesn’t automatically mean equity has stopped being a useful long-term investment. At the same time, it doesn’t mean you should blindly invest in equity simply because the market has delivered strong returns in the past.
The objective is not to choose the investment that performed best recently. The objective is to choose investments that are appropriate for your goal, time horizon, liquidity requirements and ability to handle risk. So, don’t invest in equity just because everyone else is investing. And don’t avoid equity just because your portfolio has struggled recently.
Understand what the money is for, when you will need it, and then choose the investment accordingly.
(Equity investments are subject to market risks. Past performance is not indicative of future returns. The examples above are for illustration and educational purposes only).