Fixed deposit is most preferred investment options for individual in India. People like this option may be because they are happy with fixed return and safety. However, they don’t know what they are losing by not investing in stock market. Let’s take a look at How Investment in Banking Stocks is better than the Deposit in Fixed Deposit in the same bank for Long term.
Bank Fixed Deposit VS Investment in Same Bank Share
Take one hypothetical example Ravi and Raj were two best friends and they had a surplus money say 5 Lacs. They wanted to invest their money for long-term. They both went to the India’s largest public sector bank SBI for investing this money.
Two options were given to them for investment.
Option- 1– Go with the simple way which is adopted by most of the people deposit your money for 15 years in bank fixed deposit. – Safe Investment Option
Option -2 – Go with other way and Invest in share of SBI bank. – Risky Investment Option
Ravi took a safe side and selected a fixed deposit option for the investment for 16 years. The year of Investment was 2000 and at that time SBI was offering fixed deposit @ 9% for 1 to 2 years and @10% for the long term – 10 years and above.
Raj was intelligent and had some knowledge about Financial Market and Economy. He has done a study and concluded that growth of India is not possible without banking sector and being a leader buying a Stock of SBI could be a better option.
Raj decided to go ahead with an equity investment and he purchased SBI shares of 5 Lacs @ 22 per share (as on 1st July 2000). Total 22727 shares of face value of 10.
After a long time, Ravi and Raj met in Surat on the occasion of their friend’s son marriage. Ravi came first and waiting for his friend Raj.
After few minutes Raj came in his Audi car. Ravi was surprised and asked “How have you become so rich Raj? You have won any lottery or what?”
Also Read – Fixed Deposit or Fixed Maturity Plan (FMP)
Raj replied “No I didn’t win any lottery do you remember one day we went to the bank?”
Ravi replied yes. Then Raj said you invested in bank Fixed Deposit and I purchased Shares of same Bank @ 22 and I got total 22727 Shares of SBI .Ravi replied yes.
Raj said “As you know that I have got 22727 shares of SBI in my portfolio in the year 2000. SBI has split its face value from 10 to 1 and hence I got 10-times shares of SBI. Total Share – 227270. CMP of SBI is Rs 220 (as on 1st July, 2016). So my portfolio value is 5 Cr. 🙂
227270 Shares x 220 Rs = 5 Cr
In addition to that in this couple of years, I have earned a handsome dividend of around 79 Lakhs. I have purchased this car from my dividend income.
Dividend Calculation –
2905% from June 2000 to May 2014 when face value was 10 Rs.
290.50 x 22727 (No of Share) = 66 Lakh
610% from May 2014 to June 2016 when face value was 1 Rs.
6.10 x 227270 (No of Share) = 13.85 Lakh
So, I was able to make 5.79 Cr from 5 Lacs in last 16 years. What about you Ravi.
Ravi says with sad feeling 🙁 nothing much it’s just around 26 Lakhs. Just one-third of your dividend amount.
So, this is the story of every common man of India who does not know how to invest, he simply puts money in fixed deposit like Ravi, as they don’t know the power of the stock market.
If you are Intelligent Investor with the ability to understand the business and its growth opportunity in the long term. I advise you to stick to stock market instead of a fixed deposit.
Happy Investing and Keep Smile.
Note – The story mentioned above is fictitious story and mentioned here to make beginner aware that stock market is one of the way for the wealth generation. My intention is not to compare fixed deposit and stock market, both these options are opposite to each other and made for different type of investors.
Deposits in Bank Fixed Deposit VS Investment in Same Bank Share