For decades, the default destination for most Indian taxpayers’ ITR refunds has been the Fixed Deposit (FD). FDs are safe, simple, and familiar. But in 2025, with more investment choices available, the big question is: Should you still park your refund in FDs, or are there smarter alternatives?
Let’s explore how both options compare and why a balanced approach, often guided by a SEBI-registered investment advisory, may make the most sense.
The Comfort of Fixed Deposits
FDs remain popular for three reasons:
- Certainty – You know exactly what you’ll get at maturity.
- Safety – Bank-backed, with limited risk.
- Liquidity – Premature withdrawals are possible (with penalties).
For short-term needs or for those who cannot stomach market fluctuations, FDs still make sense. An example: if you expect to use your refund in 1–2 years for a vacation or down payment, parking it in an FD ensures safety.
But here’s the catch: FDs are not designed to beat inflation over the long run. While they preserve principal, they may not grow your purchasing power significantly.
Refund in Equity or Index Funds
Now consider the alternative: channeling your refund into equity mutual funds or index funds. Unlike FDs, equity carries short-term volatility but tends to reward patient investors.
- Index funds mirror the Nifty 50 or Sensex, providing diversified exposure.
- SIPs in equity funds allow disciplined, long-term growth.
- Mid-cap and multicap funds offer slightly higher risk with the potential for higher returns.
For illustration: If you invested your refund annually in index funds, historical data suggests that long-term compounding has generally outpaced FD returns. Of course, this is not a guaranteed outcome; markets carry risk, and returns can vary. That’s where the role of a stock market advisor becomes important.
Risk vs Return Trade-Off
- FDs: Low risk, low reward. Suitable for short-term needs or risk-averse investors.
- Equity/Index Funds: Higher risk, but the potential for higher long-term gains. Best for retirement or wealth-building goals.
A stock advisory company or investment advisory firm can help you balance these two. Instead of choosing one over the other, they may recommend splitting your refund between safe FDs and market-linked funds, depending on your age, income, and goals.
Illustrative Approach to Using Refunds
Imagine you receive an ITR refund of ₹50,000. Instead of putting the entire sum in a fixed deposit, you could:
- Park ₹15,000 in a short-term FD for liquidity.
- Allocate ₹25,000 into index funds through a SIP.
- Use the remaining ₹10,000 to top up your retirement contributions like NPS.
This way, part of your refund remains safe, while another part works towards wealth creation.
Why Professional Guidance Helps
The middle-class tendency is to play it “too safe.” But financial planning is about balance. A registered investment advisor helps in:
- Designing a portfolio that aligns with your risk profile.
- Avoiding overexposure to FDs that barely grow wealth.
- Using tools like a SIP return calculator or a compound interest calculator to compare scenarios.
- Ensuring refunds contribute to long-term goals like retirement, not just short-term comfort.
With advisory investment services, your refunds don’t just sit in the bank; they actively participate in your financial journey.
Conclusion
In 2025, FDs still have a role to play, but they cannot be the only answer. Think of your ITR refund as an opportunity: protect some of it with FDs, but let the rest grow through market-linked investments.
With the guidance of a SEBI-registered investment advisor, you don’t have to choose between safety and growth. You can design a plan that offers both.
Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as a recommendation or investment advice by Equentis – Research & Ranking. We will not be liable for any losses that may occur. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL & certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
