Rely on rolling returns, not point-to-point data

"Financial planning experts often argue that equity markets outperform fixed deposits over the long term. However, I can demonstrate that a 10-year investment in fixed deposits has delivered higher returns than equity markets," declared my friend Mitesh.

- HARSH ROONGTA

An experienced professional, he often challenges investment philosophies.

Mitesh argued that liquid funds were equivalent to bank FDs, highlighting that from March 23, 2010, to March 23, 2020, they delivered 8 per cent per annum return, outperforming the 5 per cent per annum return of the equity markets (Nifty50 Total Return Index [TRI]) during the same period. To him, this proved that FDs outperform equities over the long term.

Mitesh's analysis was flawed due to "starting point bias" and "ending point bias." His chosen period ended on March 23, 2020—dubbed "Manic Monday"—when equity markets plunged 13 per cent in a single day due to the Covid-19 panic. The start date, March 23, 2010, coincided with a sharp recovery after the 2008 Global Financial Crisis. Shifting the timeframe slightly—from January 31, 2010 to January 31, 2020—changed the narrative: equity markets delivered 11 per cent per annum, outperforming the 8 per cent per annum from liquid funds.