In the world of finance and investments, one of the most overlooked truths is this: wealth is created by ownership, not by lending. For decades, Indians have been conditioned to believe that putting money into Fixed Deposits (FDs) or other debt instruments is the safest and most respectable way of investing. While safety is an important consideration, safety without growth often means stagnation.
The principle is simple: when you put your money in a fixed deposit, you are acting as a lender. When you invest in equities or mutual funds, you are acting as an owner. And in the long run, it is the owners who build wealth, while lenders settle for limited returns.
The financial landscape has evolved significantly. Inflation, rising aspirations, and broader access to capital markets demand that savers re-evaluate whether merely being a “lender to banks” through FDs suffices—or whether they should step up to become “owners” by investing in businesses through mutual funds and equities.
The Core Distinction: Lender vs. Owner
When you put money in an FD, you are essentially lending your capital to a bank. The bank uses your funds to lend further at higher rates, generating profits for itself. You earn a fixed rate, but your upside is capped.
When you invest in equity or equity-oriented mutual funds, you become an owner of businesses. Ownership brings risk, but also entitles you to unlimited upside if businesses grow, profits expand, and valuations increase.
This distinction is fundamental: a lender’s return is fixed, an owner’s return is growth-linked.
1. The Lender’s Mindset – Fixed Deposits and Debt Instruments
The lender’s mindset is rooted in certainty and security. It seeks fixed, predictable returns, even at the cost of missing out on growth. As mentioned above when you invest in an FD, you are essentially giving your money to the bank. The bank uses your money to lend to businesses, corporates, or individuals at a higher rate.
- Example: If you deposit ₹10 lakhs in an FD at 6% per annum, you earn ₹60,000 in a year. The same bank might lend this money to a business at 12% interest. The difference (called the spread) is what the bank earns.
Key traits of the lender’s mindset:
- Focus on guaranteed returns, even if they are small.
- Preference for capital protection over growth.
- Comfort in predictability.
- Acceptance of capped upside—returns never exceed the agreed interest.
But here’s the harsh reality:
- Inflation reduces the real value of FD returns.
- Taxation further shrinks net income.
- Long-term wealth creation is minimal or negative after adjusting for purchasing power.
In short, the lender’s mindset prioritizes safety today, but often sacrifices prosperity tomorrow.
2. The Owner’s Mindset – Equities and Mutual Funds
On the other hand, the owner’s mindset is fundamentally different—it focuses on growth, participation, and long-term wealth creation. When you invest in equities or equity-oriented mutual funds, you don’t lend to businesses—you own a part of them. Ownership means that when companies grow, innovate, and expand, you share in their profits, dividends, and capital appreciation.
- Example: If you buy ₹10 lakhs worth of shares in a company and it grows at 15% annually, your wealth compounds much faster than an FD. Over 10 years, that ₹10 lakhs could grow to about ₹40 lakhs, compared to an FD that may only become ₹18–20 lakhs before tax and inflation adjustment.
Key traits of the owner’s mindset:
- Willingness to embrace short-term volatility for long-term growth.
- Belief in the India growth story and the power of businesses to compound wealth.
- Understanding that equity returns are variable, but not capped.
- Focus on compounding, where reinvested gains multiply over time.
Owners benefit from:
- Capital appreciation as business valuations rise.
- Dividends as a share of profits.
- Tax efficiency (equity long-term capital gains taxed favorably).
In short, the owner’s mindset prioritizes growth tomorrow, even if it means accepting fluctuations today
Lender vs. Owner: Side-by-Side Comparison
| Aspect | Lender’s Mindset (FDs) | Owner’s Mindset (Equities / Mutual Funds) |
| Role | You lend money to banks | You own a share in businesses |
| Returns | Fixed, predictable, but capped | Variable, growth-linked, unlimited upside |
| Inflation Protection | Poor (post-tax returns often < inflation) | Strong (historical 10–15% CAGR beats inflation) |
| Risk Perception | Feels safe, but long-term risky due to erosion | Short-term volatile, but safer long-term |
| Tax Treatment | Interest taxed at slab rate (up to 30%+) | Favourable LTCG (12.5%)/STCG(20%) treatment |
| Wealth Outcome | Security with stagnation | Volatility with compounding and prosperity |
3. The Silent Wealth Killer – Inflation
One of the biggest drawbacks of being a lender is that inflation eats away the real value of returns.
- Average FD interest rate today: ~6%
- Average inflation rate in India: ~5–6%
- Post-tax FD returns: ~4–5%
This means that in real terms, your money is barely growing—or sometimes even shrinking. Ownership through equities, however, has historically delivered 10–15% CAGR over long periods, significantly beating inflation.
The Limitations of FDs
- Low Real Returns:
FD rates typically range between 5%–7% per annum. With inflation hovering around 5%–6%, the real return (post-inflation) often turns negligible or even negative.
2. Tax Inefficiency:
Interest from FDs is fully taxable as per slab rate. For those in higher tax brackets, the effective post-tax return may shrink to 3%–4%.
3. Capped Growth:
No matter how well the economy or businesses perform, FD investors do not share in that growth. Your upside remains capped to the pre-decided interest rate.
Ownership Pays in the Long Run
Wealth Creation:
Equity and mutual fund investments allow participation in the India growth story. As companies expand, innovate, and earn profits, shareholders’ wealth multiplies.
Beating Inflation:
Over the last 30–40 years, Indian equity markets have delivered annualized returns of 12%–15%, comfortably outpacing inflation and FDs.
Tax Efficiency:
Long-term capital gains (LTCG) on equity are taxed at 12.5% far lower than slab-based taxation of FD interest. Equity-oriented mutual funds also enjoy favorable tax treatment compared to fixed income instruments.
Power of Compounding:
Reinvested gains in mutual funds lead to exponential growth over decades, creating wealth far beyond the linear returns of FDs.
Mutual Funds: Bridging Safety and Growth
For investors wary of volatility, mutual funds provide a structured way to access markets.
Equity Funds → Long-term wealth creation.
Debt Funds → Better tax efficiency and liquidity than FDs.
Hybrid Funds → Balance between safety and growth.
SIP Route → Regular disciplined investing, mitigating timing risk.
Mutual funds thus democratize ownership, making it accessible even to small investors who cannot directly invest in diverse businesses.
4. Case Study – The Power of Ownership
Imagine two friends, Rahul and Sneha, both with ₹10 lakhs to invest.
- Rahul chooses FD (6% interest):
- In 15 years, Rahul’s money becomes ~₹24 lakhs.
- Sneha chooses Equity Mutual Funds (12% average CAGR):
- In 15 years, Sneha’s money becomes ~₹54 lakhs.
The difference is striking: Sneha, the owner, ends up more than doubling Rahul, the lender.
5. The Psychological Barrier – Why We Prefer Lending
Despite clear advantages, many investors hesitate to shift from FDs to equities. The reasons are:
- Perceived safety: “FDs can’t go down in value.”
- Fear of volatility: “Stocks fluctuate daily.”
- Lack of awareness: Many don’t know that long-term risks in equities are far lower than believed.
- Cultural conditioning: For decades, FDs and gold were promoted as ‘safe havens.’
But what seems safe in the short term often becomes unsafe for long-term wealth creation.
6. Building an Owner’s Portfolio
Being an owner doesn’t mean putting all money into risky stocks. It means structured investing with ownership in businesses through equities and mutual funds. A smart strategy is:
- Emergency Fund: Keep 6–12 months’ expenses in liquid funds or FDs for safety.
- Long-term Goals: Allocate a higher percentage (60–70% for young investors) in equities and mutual funds.
- Diversification: Invest across large-cap, mid-cap, index funds, and international funds.
- SIP (Systematic Investment Plan): A disciplined way to benefit from ownership without timing the market.
7. Why Owners Always Win in the Long Run
- Lenders (FD investors): Fixed income, capped returns, inflation risk.
- Owners (Equity investors): Unlimited upside, wealth compounding, ownership in India’s growth story.
History shows us that every great wealth creator—whether Warren Buffett globally or Rakesh Jhunjhunwala in India—chose ownership over lending.
As the Indian economy continues to grow at one of the fastest rates in the world, it is the owners of businesses, not the lenders, who will reap the maximum rewards.
Conclusion
The choice is clear: Don’t just be a lender. Be an owner.
FDs have their place for short-term needs and emergencies, but true financial freedom comes only when you participate in the growth of businesses. Mutual funds and equity investments allow you to step into the shoes of an owner—sharing in profits, compounding wealth, and beating inflation.
Remember, every time you choose an FD, you are funding someone else’s growth. But every time you choose equities, you are funding your own future.
✨ Final Thought:
The rich don’t lend their money; they own businesses. If you want to build real wealth, don’t just settle for interest—aim for ownership.
Disclaimer: The above article is meant for informational and educational purposes only, and should not be considered as any investment and financial advice. Articles oasis suggests its readers/audience to consult their financial advisors before making any money related decisions.