Written By: Resham Daswani

Indian investors are beginning to doubt the efficacy of time-honoured practices in the face of the rapid changes taking place in the global financial system. The relative merits of fixed deposit returns offered by franchises and banks is a hotly contested topic in India. Franchise ownership is becoming more popular as an alternative to Fixed Deposits (FD), which have traditionally been seen as a safe investment option due to its higher potential returns, scalability, and entrepreneurial attractiveness.

This article compares the returns on fixed deposits in banks with those on franchise enterprises, city by city in India. To assist you in making a well-informed investment decision, we will investigate the reasons behind investors' changing preferences, assess critical financial parameters, and offer insights supported by data.

Explaining Why Traditional FD Is Losing Their Appeal to Franchise Investors

For many years, fixed deposits in Indian banks were a byword for safe, boring money. The tides, though, are turning. That's why:

1. Reduced Interest Rates: The average annual interest rate on fixed deposits (FDs) offered by major Indian banks has fallen to 6-7% in recent years. After accounting for inflation, which typically ranges from 5% to 6%, the actual rate of return sometimes gets very low, if not completely nonexistent.
2. Investors' marginal tax rate applies to FD interest.Particularly for those in the 20%-30% tax bracket, this can chip away at the effective returns.
3. Saturated Market: It is not possible to scale FDs. Everything is simple: you put in a flat sum and get a certain rate of return. Beyond reinvestment, compounding does not exist, and there is no means to leverage money for gains that are exponential.
4. Enhanced Public Awareness of Alternatives: Mutual funds, real estate investment trusts (REITs), franchises, and startups are just a few of the diversified, higher-yielding possibilities that investors are learning about via digital platforms.

Returns, Risk, and Cost of Investing in a Franchise VS FD

A franchise can be a good compromise between being an entrepreneur and an investor. They lessen the likelihood of having to start from square one by integrating operational frameworks with well-known brands.

Summary of main components:

1. Cost of Initial Investment

In India, startup costs for kiosk models (such as snack or tea franchises) start at ₹5 lakhs, whereas well-established food or retail companies might get ₹1 crore+.

• Affordable Options: Chai franchises, little QSRs, and educational kiosks
• Tier Two Models: Salons, Moderately Priced Restaurants, and Fitness Centres
• Premium Brands: Fitness centres, fast food restaurants (KFC, Domino's, etc.), and car repair shops.

1. Managerial Concerns

There is always some degree of danger when starting a business, but franchisees reduce some of the danger by:

• Successful company models
• Procedures and Training
• Backing up the supply chain
• Brand devotion

When it comes to franchise success, however, location, quality of management, and local market conditions are absolutely critical.

1. Prospective Return on Investment/ROI

• Franchises typically have an annual return on investment (ROI) of 20% to 40%.
• Break-even varies by business and city, but is usually 18–36 months..
• Within two years, you can see a return of fifty to sixty percent from certain micro-franchising in high-traffic regions.

A Five-Year Comparison of FD Earnings vs Franchise ROI

Over the course of five years, the following is a comparison of the two options franchise or FD, for an investment of ₹10 lakh:

These figures are estimates, not actuals.. They can differ by location and banks.

Which cities provide the highest returns on franchise funding?

The franchise operation is entirely dependent on location. A Mumbai-based outlet that is prosperous may encounter difficulties in Indore, and the reverse is also true. The following is an examination of the ways in which ROI is influenced by city-level factors:

1. Bangalore, Delhi, and Mumbai are India's most populous cities. Bangalore.

• High purchasing power, familiarity with the brand, and premium price are all advantages.
• High real estate prices and high competition are also disadvantages.
• Average Return on Investment for Franchises: 20–30%

1. Among the cities that fall within the Tier 2 category are Pune, Ahmedabad, Jaipur, and Lucknow.

• Features: Lower operational costs and brand devotion
• Limitations include slower scalability and selective footfall.
• Average Return on Investment for Franchises: 30–40%

1. Nagpur, Kochi, and Ranchi are examples of Tier 3 cities and emerging markets.

• Pros: Low entrance costs and the advantage of being the first mover
• Cons: Limited brand memory and unmet needs in terms of worker training
• Average Return on Investment for Franchises: 35–45%

The Findings: Scalability vs Safety In the End

Bank FD: Putting Safety First:

• Perfect for risk-averse folks or seniors.
• The best option for the temporary storage of the surplus funds
• The provision of tranquilly, but not the generation of wealth

Franchise investment: The factor that facilitates expansion:

• Perfect for people who are interested in diversifying their active money
• Appropriate for business owners that are looking for a semi-passive income
• It provides larger returns, the potential to scale the firm, and even the expansion of several units.

So, the question still remains, which to choose then?

• Choose fixed deposits (FDs) if you want to keep your capital intact.
• Franchise opportunities in rapidly expanding cities in India can dramatically outperform fixed deposits (FDs) if your objective is to increase your wealth over the long run.

To Conclude,

Franchise vs. Bank Fixed Deposit Returns: How to Find a Way Forward!

Intelligent investors in India are no longer satisfied with 6% returns, according to the country's developing investment ecosystem. This change in perspective is most clearly shown in the ongoing argument in India over fixed deposit yields from franchises vs. banks.

In addition to increasing return on investment (ROI), equity, cash flow, and brand leverage, franchising offers a business-backed asset class. While fixed-income investments (FDs) are safe, franchises offer more flexibility and growth potential, particularly in India's burgeoning tier 2 and tier 3 sectors.

Take stock of your risk tolerance, financial resources, and desired level of engagement before making a final decision. A lot of people think that a combination of fixed-income investments (FDs) to build a solid foundation and clever franchise investments to boost growth is the way to go.

FAQs

Q.1. Do franchise investments outperform bank fixed deposits in India?

Yes, investing in a franchise can provide far better returns than fixed deposits at a bank when it comes to building wealth over the long run. Franchising, in contrast to fixed-income investments (FDs), can provide a return on investment (ROI) of 20% to 40% per year, depending on the industry and geographic region. Franchise investments, on the other hand, necessitate active or semi-active participation and carry greater operational risk.

Q.2. When investing in a franchise in India, what kind of return can one expect on average?

The typical annual return on investment for a franchise in India is between 20% and 35%, with top-performing stores reaching as high as 50% in prime locations. The return on investment (ROI) could vary by city, franchise type (quick-service, retail, service, etc.), managerial effectiveness, and reputation of the brand.

Q.3. Will bank fixed deposits continue to be a profitable investment in 2025?

In spite of its security, the returns on bank FDs are pitiful. Interest rates on fixed deposits in India range from 6-7% in 2025, with real yields that are almost nonexistent after accounting for taxes and inflation. Not great for building wealth, but great for retirees, risk-averse investors, or short-term money parking.

Disclaimer: The brands mentioned in this blog are the recommendations provided by the author. FranchiseBAZAR does not claim to work with these brands / represent them / or are associated with them in any manner. Investors and prospective franchisees are to do their own due diligence before investing in any franchise business at their own risk and discretion. FranchiseBAZAR or its Directors disclaim any liability or risks arising out of any transactions that may take place due to the information provided in this blog.