The search for safer returns
While you may have heard or read a lot about stock investing, there is not much popular literature about investing in fixed-income assets, which are less riskier, and less volatile but still grow your money. Let's look at the types of fixed-income assets available in India and why they differ from each other.
Fixed Deposits:
Fixed Deposits with banks are one of the most common investment products in India, and they continue to hold an important place in investment portfolios. The risk associated with FDs is very low because the interest rates do not fluctuate with most risk-on markets.
There are various types of FDs to choose from. For example, if an investor wants higher returns they can consider Cumulative FDs, or if they want to save some taxes, Tax Saver FDs are a very good option.
You can also withdraw your money early from FDs before the maturity date, albeit with a small penalty cut.
RBI Floating Rate Bonds:
In 2020, the (RBI) introduced a floating-rate savings scheme with a maturity period of 7 years. The interest rate on these bonds is tied to the National Savings Certificate (NSC), offering a return rate of NSC + 0.35%. There is no upper cap on the investment but it does come with a lock-in period of 7 years. You can invest in these through banks and brokerage platforms both.
Public Provident Fund:
Since its inception, the PPF has emerged as a potent option for investors. Interest rates and tax benefits both attract investors to this asset.
Debt Mutual Funds:
This class of mutual funds invest their investors’ money in a host of Fixed Income Securities, like government and corporate bonds, commercial papers, etc. Debt mutual funds give higher returns than simple bank deposits, with lower risk and lower volatility. But given that fact, the returns are generally lower than that of stocks-based mutual funds.
National Saving Certificate:
The National Savings Certificate (NSC) is a government-sponsored savings scheme that provides fixed-income returns. You can start investing in the NSC with a minimum amount of Rs 100, and there is no maximum limit for investment. The interest rates are determined by the government, considering factors such as inflation.
National Pension Scheme:
The NPS is a "retirement benefits" program introduced by the Government of India. The scheme is designed to ensure a regular income for subscribers during post-retirement years. The scheme offers flexibility to investors to allocate their funds between equities and government securities based on their preferences.
Also, there is no maximum limit on the investment amount in the NPS, but only investments up to Rs 2L in total can be used for tax deductions.
Pradhan Mantri Vaya Vandana Yojana:
This was implemented to offer monthly pensions to senior citizens, safeguarding their wealth from changes in interest rates. It has a tenure of 10 years and individuals aged 60 and above are eligible to enrol.
Government Securities:
Bonds, treasury bills, and other govt securities have varying maturity periods. These are not one-size-fits-all, you need to consider your situation before investing.
Sovereign Gold Bonds:
SGBs are gold bonds issued by the RBI. These are government securities that are denominated in grams of gold. This was introduced by the Government of India in 2015 to provide citizens with an alternative to physical gold.
In addition to the potential price appreciation, SGBs also offer a fixed interest rate of 2.5% per annum on the issue price.
Senior Citizen Savings Scheme:
This is a government-supported savings plan for their post-retirement years, the SCSS. It was introduced with the aim of securing the future of senior citizens. It offers a higher interest rate compared to other low-risk investment alternatives like bank fixed deposits and has a lock-in period of 5 years, with the option to extend it for an additional 3 years.
Now that you know about all these, you may want to allocate some of your portfolio to these assets to ensure safer returns. And if you enjoyed this article, you can read more from me here. And do let me know if you want a specific topic covered. Subscribe for free to receive more posts like this every day!