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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Comparison of Products Across Categories

Meera, a 45-year-old, wants to compare a 10-year, 7% p.a. fixed deposit with a growth-option equity fund for a goal 10 years away. Which statement best reflects a correct comparison for an adviser to share?

The fixed deposit offers a contractual return if held to maturity, but inflation and tax can reduce its real value. The equity fund has no guaranteed return, though over long horizons it has the potential for higher inflation-adjusted growth, with greater volatility.

  1. AThe FD's return is certain only if held to maturity with the same bank, while the equity fund's return is uncertain but has potential for higher inflation-adjusted growthCorrect
  2. BThe equity fund guarantees a higher return than the FD over 10 years
  3. CThe FD carries no reinvestment or inflation risk
  4. DBoth products have identical risk because both are long term

Explanation

An FD offers contractual returns, but inflation and taxation can erode the real return. Equity funds offer no guarantee yet historically have potential for higher real returns over long horizons. Claiming guarantees for equity or no inflation risk for FDs is incorrect.

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