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I am a banker and everyday I get 2–3 FD applications against 1 or 2 MF applications a week. Despite lower returns , FD is still the preferred choice for Indian investors ahead of mutual funds and equity. So why is that a middle class Indian much more likely to park his funds in a FD where his returns are always going to be in single digits?How come FDs , given their low ROI, are still not obsolete?Is the future of equities/MFs bright or will it continue to be overshadowed by FDs and RDs ?Here come my 2 cents.Availability of easy creditFDs give you option to avail credit against their value.One can take credit cards , overdrafts and loans against FDs . Credit cards and loans are issued to the limit of 85% of FD value in most banks. An overdraft means a loan of more than FD value (upper limit is fixed) which is repayable with interest.Equity gives no such benefit regarding credit cards and overdrafts.Pledging of shares / loan against shares is available in equity but that is usually limited to 50–60% of equity value and is a cumbersome process.Easy entry and exitAn FD takes a day to open and is credited to account instantaneously if one wishes to exit.MFs on the other hand take 1–2 days to open and redemption of units takes more than a day.In case of emergency, FDs have an edge over MFs here.Security and traditional approachThe middle class of our country is highly risk averse and obsessed with ‘guarantee’. People would rather opt for fixed but low returns rather than high but variable returns. FDs have a fixed ROI written on them whereas mutual funds don’t , thus making investors apprehensive.In our households, financial planning is limited to monthly budget planning. Nobody cares about investing money. For us the following equation holds trueIncome - expenses = savingsrather thanIncome - savings = expensesNot a very long ago, India was not a very rich country where survival was more important than flourishment so above equation actually makes sense. But our psychology is still in that era where providing for the family was more important and the only investment options available were post office. If someone had excess fund then they would un-hesitatingly bought gold jewellery or bank FD. So it comes as a no surprise if people still tread the same old beaten path for parking their funds.Lack of awareness among the masses.FDs/RDs are simple and people understand them. A casual/first time investor is going to get confused with jargons like NAV, holdings , debt funds,ELSS etc.Awareness towards investing is sadly very low in our country. If you enter a bank , there are 95% chances that you will see their FD return rates on a chart or television but there is 30–40% chance that they will give info about their MF schemes.This is, however changing , as banks are getting more profit oriented.The concluding statementWe all have seen MF ads where a guy , at the end, reads this statement really fastNow, believe it or not, this asshole statement is equally responsible for the widespread fear and false notions about mutual funds.Whenever people hear about mutual funds , the first word that comes into their mind is this statement and the word risk.People falsely assume that MFs are incredibly risky. Sure there’s a chance of negative returns or a complete wipe-out altogether but these funds are professionally managed. The entire portfolio is spread amongst several stocks from different sectors, thereby spreading the risk. (Theme/sector based MF like infrastructure, banking, auto etc however tend to be risky ).In the long run MFs will almost always provide better results.Investors may get low returns but I have never heard of an incident where an investor has lost all his money . Mutual funds are very safe when it comes to investing and they bring the best of both worlds i.e. security of FDs and profits of equities.People are getting more serious towards investing now which has resulted in increase in equity and related investing. Earlier tax planning was limited to PF or insurance but now ELSS and NPS is on the rise. But all of it still stands nowhere near compared to FDs RDs and insurance. However I am optimistic that the scales are going to tilt towards Mutual funds.

For the uninitiated, let us understand few terms first.Repo rate : Rate at which banks take loans from RBI. The banks need to pay back the money to the RBI the very next day. So, it is also called overnight rate.Government and corporates need money. So they can raise it through debt instruments ( like bonds, debantures etc. ) or equity. So if person A buys a bond from goverment at face value of Rs 100 for 10 years at the interest rate of 7%, it means A will have to pay Rs 100 upfront and he will keep getting Rs 7 interest for 10 years and he will get back his principal amount of Rs 100 also in the 10th year.How bonds yield varies? Let us say the economy of a country is going down (Eg India). So people will try to take out their money from share market and try to put up in more safer instruments (like goverment bonds). So, the demand of bonds will increase and they will be sold at a value higher than face value of Rs 100 (classic demand supply ). So let's say it start selling at Rs 110 but the interest rate of 7% is always applicable on face value ie Rs 100. So the person buying bond at Rs 110 don't get 7% interest rate effectively. His gains are slightly less than 7% or let's say his yields are less than 7%Now, RBI’s decision of decreasing repo rate was helpful in decreasing interest rate on only short term loans ( banks were not ready to take risk of decreasing interest rate on long term loans as repo represents only overnight rate).As the expenditure on real estate and automobiles require long term loans, RBI had to find a way to decrease interest on long term loans.Operation twist enters into the picture -Government bought long term securities worth 10,000 crore from the market.The demand for long term bonds increased and hence their yield decreased.People started looking for other long term options where they can park their money safely and ofcourse higher returns.What was the option? Probably fixed deposit of banks - so people started flooding the bank with FD’s. The banks had to decrease the rate on FD’s to stop this huge inflow of cash. Effectively, banks could pass on the benefit of lower rates to the customers asking for long term loans.However, buying long term securities for almost 10,000 crore could furthur increase inflation. So goverment sold equivalent amount of short term securities.So in nutshell, operation twist is the process of buying long term securities and selling short term securities simultaneously (you just know the reason now).References:Operation Twist finally simplifiedWhat are BOND YIELDS? Why US Government's Treasury Bills are falling down? Current Affairs 2019 #IAS

Yes. Banks have a huge sum of money lying with them and are not lending. This is a problem because banks have to pay interest on the money which is with them. There are a few reasons to this which include:-Financial Mafia - In India there is a new Mafia. The Government Agencies. CBI and ED are the new Mafia which have a new theory and law: Any Loan which goes bad has to go bad because of criminal activity and Any Bad Loan always involves money laundering to overseas and offshore accounts. ED regard any overseas payment including payment for imported spares, payments for actual deliveries and payments for overseas services as Money laundering while CBI believe an Honest Borrower cannot default. Nearly 65% of Bank Loans which have gone bad from 2016 have been converted into criminal cases. Does this mean so many borrowers are criminals? Impossible. Otherwise India would have become another Serbia or Croatia. Due to this financial Mafia - Bank Officials have decided to take their salaries and retire in peace (Especially PSU). They dont want to make decisions. They are scared that 5 years later some decision made would create trouble for them. Unless some protection is given to bank officials - the possibility is tough that they will lend. They will go on lending to Coal India or SAIL or Air INdia - Govt of India Companies which will burn all the money into a black hole and blow the economy.Land and Real Estate Mafia - No! I dont mean Bhais of Mumbai or Local Thugs or Dons. I mean the Nexus of Politicians , Local Businessmen, Banks which ensure land prices keep soaring despite the last time demand exceeded supply was in 2007 nearly 12 years ago. In a free market- Land prices should have come down. Demand for land is reducing because of high prices. Yet the prices continue to rise. In 2010 someone says Land at a place is Rs. 5000/- per SFT and In 2019 the price is Rs. 14000/- per SFT but during this period only about 8 - 10 properties have been sold and nearly most properties for sale remains unsold for several months until either the sale is withdrawn or some NRI manages to purchase it. Keeping land this costly means houses are more and more expensive and off the free market, EMIS are very high and buying a house is more and more tougher. Buying a Good Flat from a Good Builder is thus very expensive. This has resulted in a number of small time hoodlums with police protection promoting “Flats” for much lower prices and through payment systems [Get a flat for Rs. 5 Lakhs payment and remaining payment only on completion] and end up getting cheated. Thus People prefer rental properties [Which is why Rental sites revenue has soared by 168% over 2 years] or “Leased” Properties to live in. Today a house has lost attraction as an investment. This means fewer demand for Housing loans and so banks are unable to lend so much money towards housing loans despite melas or despite huge advertisement budgets.Service Industry vs Manufacturing Industries: - India has a huge service Industry. It is a glitzy thing. The problem is lending to a service Industry is strife with huge risks. There is almost always zero material assets and service industries are always rated by their equity price and by their overall brand name and demand. Problem is pledging equity is a tough business due to archaic SEBI rules and procedure and Brand names can be run to the ground in 6 months [Kingfisher Brand evaluated at Rs. 3500 Crore is perhaps worth Rs. 50 Lacs today]. While Service Industries are multiplying hugely - this means they are also the applicant borrowers and banks are reluctant to lend them money as collateral is tricky. Banks prefer manufacturing Industries as Machines are better assets [Only slightly better but still better] and Manufacturing Industries due to poor productivity and poor policies - have been defaulting badly. So Banks are uncomfortable lending to Service Industry and also to Manufacturing Industry. One because Assets are always intangible and another because of existing NPAs. So banks always beg the Govt companies to take loans. Coal India takes loans every year but without putting the Loan in business - it builds houses for employees, parks and schools and the money is sunk.Archaic SEBI and RBI :- China Banks lend overseas. They have a terrific infrastructure. Despite the SL Port Issues and the Kenya Station - they have still lend huge sums to foreign countries and foreign colloborations and make good profits. They have set up an excellent recovery route using the Government of China to play a role in any such place where investment becomes an issue [Pakistan for example where China owned Pakistan is like a foreign country and rest of pakistan is a cheap shanty town]. India does not have such policies. Indian Banks cannot lend. Only GOI can lend through Indian Banks and has lent to Nepal, SL, Bangladesh etc mostly as assistance rather than as investment. This is due to Archaic Colonial SEBI / RBI rulings.Economic Slowdown :- When the Economy slows down - people prefer putting all their assets in the bank rather than taking on more liabilities. Subsequently Deposits will go up and Loans will go down on the retail side.For Protection of Bankers if some of the proposed reforms are made then perhaps Bankers can lend again:-(i) Statute of Limitations - Bank Officials can be criminally prosecuted for bad loans only if Bank registers case within 3 years of the last fraudulent transaction [NOT DATE OF DISCOVERY OF THE FRAUD BUT LAST FRAUDULENT TRANSACTION]. Auditors can be prosecuted for negligence or collusion for upto 12 years of the last fraudulent transaction.(ii) Bank Officials protected from repurcussions like sudden Transfers for not agreeing to boss’s demands. Bank Official guaranteed that once a transfer has been granted - he cannot be transfered again for 3 , 7 or 10 years (Officer, Clerk or Peon) and even if he is transfered he cannot be transfered beyond 10 km radius from his present workplace and that too only after 180 days notice.(iii) NPA classification period be increased from 90 Days to 180 Days for unsecured assets and 90 Days to 18 months for Secured assets like houses. If a person defaults on a home loan of 2 Cr - it is unfair that within 3 months he becomes a defaulter, gets a poster tag and is obliged to pay a huge sum of money to become regular again or get the house attached and stuck in legal litigation. Big Business Loans can be classified as NPAs from 90 days to 3 Years to account for economic slowdown or productivity issues.(iv) Bank Officials from Rank of AGM to GM retire by the age of 57 instead of 60 and all higher ranks abolished. After GM - Bank officials are chosen for higher management like COO, CFO, CEO in two executive Grades - Grade I and Grade II for 5 years and work under contract with Govt of India. So every bank official who starts in a bank finishes of as GM and then has to be selected as Executive Grade I or II to work for 5 years under contract with GOI for abother bank.(v) Guaranteed Bail for Bank Officials in Fraud Cases with conditions:- Bank officials are middle class people and despite some corrupt ones - many are decent people whose maximum corruption is stealing pencils, paper clips and A4 paper from the Bank. Yet when they give some loans due to recommendation or some other reason they get hauled up in frauds, arrested and disgraced. Govt should guarantee Anticipatory Bail to all such bank officials.(Vi) Inviting Foreign Real Estate Developers from Singapore, China, HK for building flats in India. They are more reputed and can put money in deposits. To ensure that 80% of local developers are unlicensed and cannot build anymore or if they do build - they agree to deposit 30% of the building costs with GOI to pay any buyers if they cannot deliver. They also have to pay big sums for getting licenses. This ensures that the best builders build houses and the bad ones get filtered away.(Vii) Relaxing SEBI and RBI Norms. Indian Banks get resegregated. This means Banks are divided into Class A, B and C. Class A banks can do Commercial and Project Financing Only, Class B Banks can do Commercial and Retail Financing and Class C Banks can only do Retail Financing. This way only the top banks like say SBI or PNB (Merged) or Canara Bank (Merged) requires INternational strength and needs Basel I. In US prior to 1997 - almost every Bank was divided into Industrial-Commercial- Retail or Investor - Merchant.