Investors have been told one simple formula for wealth creation over the years: stay invested in equities for the long term, continue your SIPs, and stock market returns will beat traditional savings options like fixed deposits.
But ace investor Shankar Sharma has challenged this popular belief, arguing that once investors account for taxes, market volatility and the risk of losing capital, equities may not always offer a better deal for ordinary investors.
Speaking about the growing equity investing culture, Sharma said on a show with NDTV, “Equity markets are meant for big boys and professionals. They are not meant for Mr. Joe on the street.”
His comments come at a time when India is witnessing an unprecedented retail participation boom. Monthly SIP investments have crossed record levels, with millions of Indians turning to mutual funds and stock markets in the hope of creating long-term wealth.
However, Sharma believes the discussion around equity returns often ignores an important question: what is the actual return an investor gets after accounting for risk and taxes?
According to Sharma, many investors look at equity returns of around 10% to 12% and compare them directly with fixed deposit returns of 6% to 8%. He argues that this comparison is incomplete.
“People say equities give 10-12% returns. But after tax, what is left? Then adjust that return for volatility of 15-20%. The picture changes dramatically,” Sharma said.
His argument is based on the idea of risk-adjusted returns. A fixed deposit offers certainty. The investor knows the interest rate beforehand and, barring extreme circumstances, the principal amount remains protected.
Sharma describes this as the difference between “return on capital” and “return of capital.”
“An FD gives you both return on capital and return of capital. In equities, you have no guarantee of return of capital,” he said.
Risk-adjusted return is a way of measuring whether an investment’s additional returns are worth the additional risks taken.
For example, if an equity investment generates a 12% annual return but experiences sharp price swings and periods of losses, the investor has to decide whether the extra return over a fixed deposit is sufficient compensation for taking that uncertainty.
A fixed deposit, on the other hand, offers lower but predictable returns.
This does not mean equities are always inferior to fixed deposits. Historically, equities have created significant wealth over long periods because companies grow, profits rise and stock prices tend to reflect that growth over time.
However, the journey is rarely smooth. Investors may face years of weak returns, sharp market corrections and periods where fixed deposits may temporarily outperform equities.
Sharma was equally critical of the rising popularity of systematic investment plans (SIPs), which have become the preferred route for millions of Indian retail investors to enter equity markets.
“SIPs are a great, fantastic product, not much for the investors, but for promoters, VCs, PEs and of course, FIIs, by giving them knife through butter exits,” Sharma said.
The statement refers to his view that the steady flow of money through SIPs provides continuous liquidity in the market, allowing early investors, promoters, venture capital funds, private equity investors and foreign investors to sell their holdings more easily.
His remarks challenge the popular narrative that SIPs automatically guarantee wealth creation.
However, financial planners often argue that SIPs help ordinary investors by promoting disciplined investing, reducing the impact of market timing and allowing investors to benefit from rupee-cost averaging over long periods.
There is no single answer to the stocks versus FD debate.
The right choice depends on an investor’s financial goals, age, income stability and ability to handle market volatility.
Equities have historically delivered higher returns over long periods, but they come with uncertainty and the possibility of temporary or prolonged losses.
Fixed deposits provide stability and predictability but may struggle to beat inflation over very long periods.
For many investors, experts generally recommend a balanced approach where safer instruments provide stability, while equities are used for long-term wealth creation.
Sharma’s comments have started a debate at a time when India has seen a historic shift towards equity investing.
The country’s stock markets have attracted millions of first-time investors, while monthly SIP inflows have touched record highs.
His central argument is not that equities can never create wealth. Rather, he questions whether every retail investor fully understands the risks involved and whether headline returns alone tell the complete story.
As India embraces an equity culture, the debate over stock market returns versus fixed deposits is likely to become more intense. The biggest lesson for investors may be that returns should not be viewed in isolation; the risks taken to earn those returns matter just as much.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)