An interest in ‘Fixed Deposits’

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My father,more or less, spent a lifetime poring into Army accounts as a public servant in the employ of the Government of India. He eventually became a fastidious man, rigid about his ideas – small and unedifying as it may seem to us. He loved to quote maxims and so firmly believed that one should cut one’s coat according to one’s cloth. It was a pragmatic decision as well given that money was hard to come by in the world of babudom. Thankfully these were pre-liberalization days and the consumerism wave was yet to hit us.

I was pursuing my Management degree when an MNC Bank issued me a Credit Card. I was preening like a Peacock to have one but it simply made no real sense to my father. “What sort of Bank it was that issued a Credit Card to someone who had no income? What happens to the Card dues if you fail to complete the course or fail to find a job?”, he wondered with genuine skepticism.

He always believed in saving for the rainy day and often fretted that he had not done enough. He was a good saver but a rather poor investor. Shares were a strict ‘no-no’ as he believed that it was akin to playing roulette with one’s hard-earned money in the Casino. He was not familiar with Mutual Funds as well.

So apart from the traditional savings that he made in Gold and Provident Fund, one avenue that attracted his interest was the ‘Company Deposits’  scheme. Their USP was to offer just the wee bit more return than the Bank FDs and the Small Savings schemes. It all started of well as he initially dealt with the blue chip companies and had no reason to worry about his investments.

Many of these firms also provided glossy copies of the ‘Annual Report’ and my father treasured them. I once told him that if he could trust the company with their deposit, why not go a step further and invest in their shares as well. He demurred for the trust in his mind was very ‘fixed’ in nature and he had no appetite for the vagaries of the market.

A small time broker earned his trust and eventually suggested a few companies that were not so well-known but were offering a higher interest rate. Risk grading of these deposits was rather a novel concept and many of these popular deposits were advertised on ‘cyclostyled’ pamphlets distributed by the brokers themselves.

The ‘Risk v/s Return’ equation was not quite understood by my father – he failed to reason that some of these ventures may not be in such a great shape after all and hence were forced to fork out the additional interest. Not only did he invest in them, he even recommended them to some of his friends, who too made the deals through the friendly broker.

My father really enjoyed handling these deposits – in the pre-internet era when Banking had little to do with virtual world, he loved to visit the Bank branch and enjoy a chat with the friendly clerk. He would neatly organize the FD interest warrants usually payable on the monthly or quarterly or annual basis. He would ensure that they were deposited on the due date without fail. I once argued with him that in the bygone days on Banking wherein an exotic formula was applied to compute monthly interest instead of the daily ledger balance, it made little difference if he were to bunch the instruments and visit the Bank less often. He would simply not agree and made a fuss of being disciplined in one’s approach to financial matters.

Sadly he encountered a bad Apple that shook his trust in the Company Deposit scheme. One of the companies had some trouble with some foreign country operations and failed to honor the deposit redemption on time for some depositors. This made many other depositors to redeem the deposits instead of renewing it without much thought and caused a run on the firm. Luckily for him things improved eventually and he did receive his money post a 6 months delay. The Company even paid the interest for the additional period. But it brought no solace to my father who was shaken by the fiasco. He was also pained that some of his friends too had suffered the same distress and he had put them in the soup by recommending the company.

In that instant he decided to redeem all his ‘Company Deposits’ as they were no longer his cup of Tea. He chased the paperwork and eventually ensured that all his funds had been redeemed and invested in Fixed Deposits with a nationalized Bank. As I mentioned earlier, he was a man of ‘fixed ideas’ and would not change his mind easily once it was made up.

Internet has leveled the playing field a lot now and the arbitrage profit to be had on account of ‘information asymmetry’ is a lot more nuanced game. Even an average investor has many avenues to learn and evaluate the ‘risk v/s return’ trade off that is available on a wide range of financial instruments. My father would have surely loved to research on his options.

He would have still failed to understand the world of sub-prime crisis in Mortgages, credit default swap crisis, the NINJA loans fiasco though. It has a bit to do with the way his feet were firmly set on the ground, so that many ‘airy-fairy’ schemes would have been as unappealing as investing in Emu farms.

Artist:irmetov Collection:iStock Vectors Courtesy: Getty Images
Collection:iStock Vectors
Courtesy: Getty Images

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