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Suresh Krishnamurthy

THE latest series of advertisements from Franklin Templeton are targeted at depositors in fixed deposits. Investors put more money into fixed deposits and bank term deposits than they in mutual fund debt schemes. Thus, making a sales pitch to such investors is entirely in order. However, the print and television advertisements seem to convey a misleading picture about fixed deposits. That does not seem to alright. One particular advertisement is more misleading than the rest. The print copy says that investing in fixed deposits is a way of idling one's money. The copy goes on to suggest that inflation and taxes eat into fixed deposit returns that are already low. It also says that investors should consider Templeton India Income Fund that gives a return of 12.75 per cent annually over three years.

Now, inflation and taxes eat not only into fixed deposits but also income from mutual funds. Yes, mutual funds are a tax efficient option compared to fixed deposits. But they are not as inflation-efficient as fixed deposits.

Second, the ad copy fails to mention the points made in the sales literature available on the Web site of Franklin Templeton India. They are:

1) returns of debt funds over the past three years have been influenced significantly by falling interest rates;

2) Coupon returns and trading profits are expected to be the main contributors to future returns. The import of these two points is that fixed deposits will not necessarily underperform debt funds in future.

Indeed, mutual funds are a superior option compared to fixed deposits. In the latter, the duration of investment keeps declining with each month. But, in an open-end fund, the duration is constantly maintained or changed to produce better returns to investors.

Mutual funds are also tax efficient. However, a fixed deposit is not without its advantages. If interest rates do rise, then a fixed deposit would benefit you more than a mutual fund can. In addition, fixed deposits can be tailored to the investment and consumption needs of an investor.

As such, fixed deposits complement mutual funds nicely. Deriding fixed deposit investing as a way of idling money is unwarranted.

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