How Much of Your Portfolio Should Be in FDs?

The question nobody asks correctly

Most people frame the FD allocation question as: “How much should I keep in FDs to be safe?”

The correct question is: “How much more capital am I willing to commit to buy that safety?”

These are not the same question. The first treats safety as free. The second — which is how practitioners like Deepak Shenoy of Capitalmind frame it — acknowledges that safety always has a price. That price is paid not in volatility, but in capital: you must deploy more of it to arrive at the same destination.

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The capital cost of safety

Here is the core insight in numbers.

Assumption: You need a corpus of ₹1 crore in 15 years.

Route	Starting capital needed	Annual return assumed	Post-tax rate
Equity (Nifty 50 index)	₹18.3 lakh	12% CAGR	12% (pre-tax, simplification)
FD (bank FD, 7.5%)	₹45.4 lakh	7.5% pre-tax	5.25% at 30% slab

To reach the same ₹1 crore in 15 years, the FD investor needs to start with 2.5× the capital of the equity investor.

This is the Deepak Shenoy insight: “If you need ₹1 lakh and you are willing to take risk, invest in equity. If you are not willing to take risk, you don’t need ₹1 lakh — you need ₹1.5 to ₹2.5 lakh, depending on the time horizon.”

The multiplier grows with time:

Horizon	Capital multiplier (FD ÷ equity)
5 years	1.3×
10 years	1.6×
15 years	2.1×
20 years	2.8×
25 years	3.7×

Assumptions: Equity 12% CAGR, FD 7.5% at 5.25% post-tax (30% slab). The multiplier narrows at lower slabs.

For short horizons (5–7 years), the 1.3× premium is reasonable — equity volatility in that window is genuinely risky. For 20+ year horizons, paying a 2.8× capital penalty to avoid volatility is a very expensive form of certainty.

This is not an argument against FDs. It is an argument for calibrating how much of your portfolio sits in them by life stage and purpose, not by instinct.

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Why FD real returns are thin (the inflation tax)

Before the allocation frameworks, one number must be internalized: the real post-tax return on Indian bank FDs.

Current bank FD rate: ~7.5% (senior citizen: 8.25%)

Income slab	Post-tax FD rate	Inflation (CPI, ~5%)	Real return
0% (no income)	7.5%	5%	+2.5%
10%	6.75%	5%	+1.75%
20%	6.0%	5%	+1.0%
30%	5.25%	5%	+0.25%

For anyone in the 30% slab, an FD barely beats inflation after tax. The purchasing power of your FD corpus increases by only 0.25% per year in real terms.

This single fact explains why young, high-income earners in the 30% bracket should hold FDs only for liquidity and short-term goals — not for long-term wealth building.

It also explains why senior citizens and retirees (often at lower tax rates, with an extra 0.25–0.75% rate benefit) have a better case for a higher FD allocation: their real return is meaningfully positive.

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The five frameworks for FD allocation

Framework 1: The classic “100 minus age” rule

FD allocation = your age (in percent)

At 25 → 25% FD. At 50 → 50% FD. At 70 → 70% FD.

Origin: Traced to the 1970s American personal finance writing. Popularized by John Bogle (Vanguard founder) and others.

Why it works: Simple. Memorable. Automatically shifts you toward safety as you age. No spreadsheets needed.

Why it fails for Indians today:

1. Life expectancy in India is rising past 75-80. At 60, you may have 20+ years left. A 60% FD allocation at retirement could mean your corpus doesn’t last.
2. India’s medical inflation runs at 8–12% — much higher than general CPI. Health costs in retirement need an equity engine.
3. At 30% slab, a 30-year-old with 30% in FDs earns 0.25% real. That tranche is barely treading water.

Verdict: A reasonable starting point for people who want a simple rule. Too conservative for long-lived investors; too aggressive for people without any equity experience.

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Framework 2: The updated “110 or 120 minus age” rule

FD allocation = age − 10 (for 110) or age − 20 (for 120)

At 30: 20% or 10% FD. At 60: 50% or 40% FD.

Origin: A modern modification accounting for longer life expectancies. Close to the allocation models used by Vanguard’s target-date funds (2020–2050 series).

Why it works: Keeps more in equity for longer — which matters when you have 30+ working years and then 20+ retirement years to fund.

Indian calibration: The 110 version (FD = age − 10) is a reasonable default for Indian investors who:

• Have stable employment income
• Have a separate emergency fund (6 months in liquid FD/savings)
• Are 30%+ slab earners who understand the real return situation

The 120 version suits investors with:

• High risk tolerance
• Long time horizons
• No dependents or large near-term liabilities

Verdict: Better than 100-minus-age for most Indian professionals. The 110 version is a solid default.

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Framework 3: Benjamin Graham’s 25/75 band

Core rule: Never hold less than 25% or more than 75% of your portfolio in bonds/fixed income.

Adjust within this band based on market valuation and personal risk assessment — not purely age.

Origin: The Intelligent Investor (1949), Chapter 4. Graham’s argument was that the 25% floor prevents speculative ruin, while the 75% ceiling prevents excessive conservatism.

Graham’s adjustment logic:

• When markets look expensive (high P/E) → shift toward 75% bonds/FD, 25% equity
• When markets look cheap (low P/E) → shift toward 25% bonds/FD, 75% equity
• The shift is slow and deliberate — not market timing

Why it is relevant for India:

• The 25% floor aligns with India’s short-term goal needs (emergency fund + 1-2 year goals ≈ 20–30% for most working adults)
• The valuation-adjustment component is rarely used in practice by retail investors — but the mental model of a band is useful: it gives a floor and ceiling to your risk tolerance debate

Limitation: Graham wrote for the US market with bond yields of 3–4%. In India, the FD-equity decision is different because FD rates are 7–8%, much closer to equity’s 12%. The risk-reward gap is narrower.

Verdict: Most useful for the boundary conditions — the rule that you should never go below 25% safe assets (unless you have a very long horizon and no near-term needs) and never above 75% (unless you’re fully dependent on external income with no need for portfolio drawdown). The valuation-adjustment is for advanced investors.

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Framework 4: The glide path (target-date fund logic)

Core concept: Your equity allocation follows a smooth downward “glide path” as you approach and pass a target date (typically retirement age).

A typical Indian glide path might look like:

• Age 25: 90% equity, 10% FD
• Age 35: 80% equity, 20% FD
• Age 45: 70% equity, 30% FD
• Age 55: 55% equity, 45% FD
• Age 60 (retirement): 50% equity, 50% FD
• Age 65: 40% equity, 60% FD
• Age 70+: 30% equity, 70% FD

Key insight: glide paths don’t stop at retirement. One of the most important findings in retirement planning research is that the sequence-of-returns risk peaks in the first 5–10 years of retirement. Selling equities during a crash in your first few years of retirement can permanently impair a corpus that would otherwise have recovered.

The response: the “bond tent” — temporarily increasing fixed income in the 5 years before and 5 years after retirement, then slowly shifting back to equity during later retirement. The rationale: you draw on FDs while equity recovers; equity engine runs for your later decades.

See: Sequence of Returns Risk → and Bond Tent & Glidepath →

Verdict: The most theoretically grounded approach. Difficult to implement without automation (India has no equivalent of US target-date funds that do this automatically). For DIY investors, an annual review and rebalance to the glide path works well.

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Framework 5: The bucket strategy (needs-based, not age-based)

Core concept: Divide your portfolio into time-segmented buckets based on when you will need the money — not on your age.

Bucket	Time horizon	Instruments	Typical size
Bucket 1	0–2 years	Savings account + FD + liquid MF	2 years of expenses
Bucket 2	2–7 years	Short-term debt MF + PPF	5 years of expenses
Bucket 3	7+ years	Equity index MF + equity direct	Remaining corpus

How it works in retirement: You live off Bucket 1. Bucket 2 refills Bucket 1 annually. Bucket 3 (equity) refills Bucket 2 every few years. In a market crash, you leave Bucket 3 untouched and let Bucket 1 and 2 absorb the short-term income needs.

FD allocation under bucket strategy:

• Bucket 1 (FD component) ≈ 2 × annual expenses
• If annual expenses = ₹10 lakh and total corpus = ₹2 crore → 10% in FD
• At ₹50 lakh corpus and ₹10 lakh annual expenses → 40% in FD

This means the bucket strategy gives a very different answer depending on your corpus-to-expenses ratio — a large corpus relative to expenses can maintain a smaller FD bucket.

Why it is the best framework for retirees: It prevents behavioural mistakes (selling equity in crashes) while generating predictable income. The FD bucket provides 2 years of runway — enough time for equity to recover from most corrections.

Why it is less applicable during accumulation: While building wealth, you are not drawing down the corpus. The bucket logic — which is about not having to sell equity at the wrong time — doesn’t apply if you have a salary covering expenses.

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What Indian data suggests: life-stage recommendations

Synthesizing the five frameworks above, Indian household income patterns, tax rates, and historical asset class data, here are the consensus ranges:

Life stage	Age range	Recommended FD allocation	Rationale
Career start	20–30	10–20%	Only emergency fund + 1-yr goals in FD. Long horizon makes equity compounding powerful.
Growth phase	31–40	15–30%	Add goals (home down payment, child’s early education). FD for goals < 3 years away.
Peak earning	41–50	25–40%	Start building a “safety net” tranche. Reduce equity concentration risk.
Pre-retirement	51–60	40–55%	Reduce sequence-of-returns risk. Build the FD bucket for first 2–3 retirement years.
Early retirement	61–65	50–65%	Bucket 1 + 2 fund 5–7 years. Equity handles inflation for decades 8+.
Late retirement	66+	60–75%	Income-generation priority. Maintain 20–30% equity for medical inflation hedge.

The floor that never changes: Regardless of age, keep at least 2× annual expenses in liquid or short-term FD. This is your emergency buffer — not an investment, a firewall.

The ceiling that rarely makes sense: Going above 80% FD at any age (unless you have a pension or guaranteed income source covering all expenses) risks your corpus being eroded by medical inflation in your 70s–80s.

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The Indian-specific factors that shift the dial

The global frameworks above were designed for Western markets. Indian investors should adjust for:

1. Higher inflation volatility India’s CPI has averaged 6–7% historically, with food/fuel spikes. Medical inflation runs 8–12%. A 70% FD allocation in retirement means your corpus is gaining 5.25% (post-tax, 30% slab) while your real expenses may grow at 7–8%. The math is unfavorable.

Implication: Indian retirees should hold more equity than global frameworks suggest — perhaps 10–15% more than the 100-minus-age rule prescribes.

2. No annuity market depth In the US and Europe, retirees can convert corpus into guaranteed lifetime income (annuities) at reasonable rates. In India, the annuity products are expensive and illiquid (LIC annuity rates are 5.5–7%). FDs serve as the “safe income” proxy — but FDs have reinvestment risk (rates can fall at maturity).

Implication: FD laddering (staggering maturities across 1–5 years) reduces reinvestment risk. See FD Ladder Strategy →.

3. Senior citizen FD rate bonus Banks offer 0.25–0.75% additional FD rate for depositors above 60. Jana SFB’s senior citizen 1-year FD rate is 9.00% as of May 2026. At this rate, even a 30% slab earner gets 6.3% post-tax — above inflation. The case for FDs strengthens materially at 60+ for this reason.

4. DICGC limit concentration The ₹5 lakh DICGC insurance limit means that FD-heavy portfolios need bank diversification. A ₹1 crore FD portfolio should be spread across at least 10–15 banks to ensure full insurance coverage. This is operationally intensive — another reason not to go too heavy on FDs.

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Common mistakes

Mistake 1: Treating FD as “zero risk” FDs carry inflation risk (real return can be negative), reinvestment risk (falling rates on rollover), and concentration risk (all in one bank). They are low volatility — not zero risk.

Mistake 2: Ignoring the tax slab A 30-year-old in the 30% slab earning 0.25% real on their FD tranche is paying a high price for liquidity. For that slab, PPF (tax-free, 7.1% nominal, EEE) is almost always better than FD for amounts that can tolerate a 15-year lock-in. See PPF → for the comparison.

Mistake 3: The “stability” trap at peak earning People in their 40s often increase FD allocation when their income peaks — because they feel they can afford to “play it safe.” But this is when equity compounding does its heaviest lifting. A 45-year-old with a 15-year runway (retirement at 60) should be in the equity-heavy part of the glide path — not retreating to FDs.

Mistake 4: Not adjusting the plan for age The single most common mistake is setting an asset allocation in your 30s and never revisiting it. The glide path only works if you actually glide. Annual reviews and rebalancing toward the target allocation by age are necessary.

Mistake 5: Treating “no tolerance for risk” as a fixed trait Risk tolerance is partly temperamental and partly a function of circumstances. Someone who panicked and sold equity in March 2020 learned something valuable about their risk tolerance. But risk tolerance also changes with age, income stability, and financial literacy. Revisit the question every 3–5 years.

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The practitioner’s rule of thumb

After surveying all five frameworks and Indian-specific factors, the simplest rule that captures most of the insight:

FD in your portfolio = (age − 10)%, floor of 20%, ceiling of 75%.

Within that FD allocation, keep at least 2× annual expenses in short-term FD (1-year or less). The rest can be in longer-tenure FDs or PPF.

This is the 110-minus-age rule with guardrails. At 25 → 20% FD (floor kicks in). At 60 → 50% FD. At 75 → 65% FD.

For anyone unwilling to run their own spreadsheet, this is a defensible starting point. Refine it by adding the bucket strategy overlay in retirement and the Graham floor constraint (never below 25%).

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Use the interactive tool

The chart above lets you:

• Compare the five frameworks side by side across every age from 20–75
• Pin your age and see what each theory recommends
• Run the “Capital Cost of Safety” calculator to see how much more capital you need in FDs vs equity for your specific time horizon

A higher FD allocation is not more responsible. It is more expensive. Make the choice consciously.