Finance

When Investing In a Fixed Deposit Makes More Sense Than Digging a Borewell

Here’s an unusual financial planning conversation I heard from a colleague at lunch today —

Seems my colleague wanted to get a borewell dug at their residence. But when the contractor visited her premises for a site evaluation it was discovered that the compound wall of the house had to be torn down in order to accommodate all of the digging machinery. So when all the costs (including reconstructing the compound wall) were added it ran up to around Rs 200,000.

Here’s what my colleague reasoned —

Rs 200,000 in a fixed deposit would yield around Rs 18,000 per year at 9% rate of interest. That’s about Rs 1,500 per month or Rs 375 per week on an average. The cost of a tank’s supply of water in that area is around Rs 300 — Rs 350 and that water lasts for about a week. So, it makes no financial sense to go ahead and dig the borewell. Not only does the interest earned from the fixed deposit cover the cost of external supply of water but you get to keep the principal amount as well (rather than it becoming a sunk cost and really sunk if the borewell were to run dry).

Good thinking!

9 thoughts on “When Investing In a Fixed Deposit Makes More Sense Than Digging a Borewell

  1. What if the cost of water increases with inflation.Assuming a rate increase of 9-10% per year , will it be profitable still ??
    I dont think so

  2. The cost of water supplied in tank might increase in the future and at that time if he wants to dig the borewell it will cost even more than 2 lakhs. Also the water from the borewell will taste better and healthy than the tank water. Agree that the borewell can become dry, but same is true with the tank water, there is no gauranteed supply.

  3. He he he…like I said it’s a case of unusual financial planning. :-)

    @T S Ashok — In fact, I do remember reading some time back a convincing argument for investing and then using the interest earned for renting. Will try and find that piece. It’s definitely not a strategy for everyone though and that article too was US-oriented.

  4. Hmmmm, that’s strange. Very unusual way of thinking. With so many houses coming up in Bangalore in every nook and corner the borewell may run dry in few months.

  5. My take on this is different:

    The water supplied by the tanker is also mined from a borewell somewhere, which means we are still using underground water. As we are all aware borewells are running dry in all urban areas.

    So, we should really think of investing this money in a RWH solution and I am guessing the tangible and intagible ROI will be higher in the long run.

  6. @Chinmay,

    Good take but RWH will be useful in regions where we get heavy rainfall. In Bangalore you just get few showers here and there. Even in rainy season it does not rain that much.
    How long would the water last? My apartment had invested in RWH few years back but did not get much benefit and they have stopped making use of it now.

  7. Well, Peace of mind is one factor which was not taken into account. The assurity of 24 hr availibility of water vs depedning on the water tank supplier every week but then you have already mentioned “unusual” ;)

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