Lets look at some of the facts

      Generally a youth starts earning at approx 23 years of age , normal retirement is approx 60 and with increasing longevity can live up to 80 years of age . It means approx 37 years of salary earning and 57 years of survival on total earning of which last 20 years when there is no fixed monthly salary earning .

• Historical returns for a 1 year, 3 year or 5 year debt fixed return investment product has been between 8% to 9% . It might have gone 1or 2 percentage during higher inflation in past . When one looks at equity return the range could be any wild guess in short term positive or negative ( 1 year or less period ) but as one moves to longer period some pattern of fixed return emerges and from period 5 years onward the return has been generally higher than debt return and in the range of 15-20 % . Moreover the probability of getting expected higher return increases with time duration and it is almost 99% for 10 year and above investment horizon.

• If we track bank deposit rate for 1,3, 5 and greater than  5 year periods one has seen that there is no extra return for greater than  5 year period investment . At times 5 year FD return is less than 3 year FD and also return on 5 year FD and greater than 5 year FD are same. It simply implies that there is no extra incentive for investment beyond 5 year investment .

• In India the investment of individuals ( households ) in debt vs equity is approx 96: 4 i.e only 4 rupee out of total 100 rupee invested is in equity ( share or mutual fund ) and 96 rupee in debt ( bank deposit , fixed deposit, post office deposit etc ) .

Lets look at investor attitude toward investment . Do they want return OF investment i.e NO LOSS or Return ON investment i.e GAIN. Off course first one is the basic minimum requirement which everyone wants .  Now we need to understand NO LOSS also .Is it capital getting back ( i.e if 100 rupee invested then should get back 100 at least ) or todays value worth of Rs 100 when invested which means taking account of inflation i.e if inflation has been 7% p.a then at least get Rs 107 after a year of investment .

If I look 96: 4 ratio ( Debt : Equity ) I feel most are satisfied with protection of value of money invested . Anything marginal above it is more welcome .  But question is how much more they can get .

Lets try to understand why there is no incentive for long term investment in bank FD . Bank deposit rate is based on repo rate which to a large extent is based on inflation rate and also economic growth ( GDP ) requirement . Bank rate can never be less than inflation else why some one will deposit to lose its money value . But at the same time as we are growing economy and there will be demand for money i.e loan requirement so Bank Loan rate has to be as less as possible . Competition and demand for loan decides bank deposit rate and bank loan rate .

So the best return one can expect from fixed deposits of Bank is few percentage more than inflation rate . It implies there is RETURN LIMITATION in debt investments .

The MINIMUM return from debt any investor looks is return OF investment where net return is positive i.e inflation growth is also taken care . This is the normal mindset . Why not ye dil maange more .

Every investor if desires MORE than this ABOVE MINIMUM but with no disturbance of peace of mind then he has to look where there is ZERO probability of return not going down from the MINIMUM . It means he has set a base return + more which is return ON investment .  When looked from debt perspective It has to be from where there is no extra incentive for debt investment ( i.e  5 year ) . It means if investment horizon is beyond 5 year investment asset should be in equity and not debt . Cross checking the same in equity investment i.e from where the 99% probability of base return + more starts it is 5 year .  The more the time horizon beyond this there is probability of higher consistent return in equity.

If wants to ensure more SAFETY AND STABILITY i.e more assurance from downside risk from equity investment one should invest through mutual fund route where research based investment decisions are taken and also diversification in many sectors and stocks reduces volatility in return .