Beware of this mis-selling: “Earn assured 12% returns”!

Last Updated on

Beware! Corporate fixed deposits that offer 8.25% annual return are being marketed by prominently quoting their ten-year annual yield of 12.09%. A look at how this form of mis-selling based on a technicality.

The ad says,

Earn assured returns (first line – font size about half an inch)

upto 12.09* % p. a.  (second line – 12.09 is printed about 2 inches long!)

offered by AAA/AA+ raed FD schemes (third line – about normal font)

A table of corporate fd with returns (12.09 is no where to be seen)

(*) XYZ corporate bond offering 12.09% pa yield to maturity for 10Y deposit @ 8.5% p.ap compounding annually

How many would understand that 8.5% is the actual annual return on investment and this 12.09% – the most prominent figure in the ad has no relevance whatsoever to the investor?!

Sure, like all forms of mis-selling, the ad has technically correct information.  It is designed with only purpose: the audience must be given the impression that the assured return is 12.09% p.a

Sure this 12.09% is a measure of return, but it is not the annual return. The annual return is 8.5%.

If you invest Rs. 100, the value after 1 year = 100*(1+8.25%) = 108.3

after 2 years, 100(1+8.25%)(1+8.25%) =117.2

after 3 years, 100(1+8.25%)(1+8.25%)*(1+8.25%)  = 126.8 and so on.

The annualized yield is not constant. It will increase with each month of investment.

The annualized yield is equal to total gain made after ‘n’ years,  divided by ‘n’ of years invested.

After 1 Y the annual yield =  ((1+8.25%)-1)

After 2Y,   ((1+8.25%)^2-1)/2 =8.59%  (gain made after 2 years)/2

After 3Y,  ((1+8.25%)^3-1)/3 = 8.94%

After 10Y, ((1+8.25%)^10-1)/10 =12.09% 

Therefore, while the return which presents the rate at which money grows is constant for a fixed deposit, the annualized yield is nothing by the gain made per year and this increases with increase in the tenure of the deposit.

Corporate-deposit-return-yield

Instead of advertising the return of the deposit as 8.25%, the ad uses the 10-year annualized yield  of 12.09%, and makes it sound as if it is a product that gives you assured returns of 12.09%. Beware!

Do consider sharing this post with the buttons below.

Use this Fixed Deposits: Annual Yield vs. Annual Interest to understand more about yield and to calculate return from yield and yield from return.

The concept of yied for RD is discussed here: Recurring Deposit Calculator: Annualized Yield

Do share if you found this useful

About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.

Do check out my books


You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

Leave a Reply

Your email address will not be published. Required fields are marked *