Table of Contents
What are Fixed Deposits?
Investors who are fearful of losing their money can consider a fixed deposit. However, in recent years, various fixed deposit options have become more popular. Let’s take a closer look at what’s going on. With a set deposit, it’s an ideal choice for the prudent investor. A lump sum deposit is all that is required, and you’ll receive a guaranteed interest rate for a predetermined period of time.
Furthermore, the value of a fixed deposit is not affected by changes in the market. As the financial environment has changed, people are willing to take more risks in exchange for higher returns that are also tax-advantageous. In addition to the fixed deposit, there are a variety of alternative investment possibilities.
Why Do Indians Prefer Fixed Deposits?
According to a SEBI poll, investing in bank FDs is preferred by 95 percent of Indian households, whereas investing in mutual funds and equities is preferred by fewer than 10 percent. It guarantees a specified rate of return while protecting the investment.
A large majority of Indians would not invest if there were no choices that guaranteed a profit. As a result, at the end of the month, if there was a surplus, it would be kept undisturbed.
For fixed deposits, banks provide the option of receiving interest either on a regular basis or at the time of maturity. Because of this, an FD is an excellent way to mobilize your funds. Investors who want solely assured profits and have a low-risk tolerance should choose an FD.
7 Best Alternatives to Fixed Deposits:
Equity Funds
These are mutual funds, and they’re excellent at fending off the effects of rising inflation. A portfolio manager is required to invest the investor’s money in equities, such as common stocks of publicly listed firms, in order to gain ownership of a corporation.
They are a fantastic alternative to long-term fixed deposits, and they are known for their better yields than fixed deposits. Long-term investments in equity funds carry a lower risk than those in debt funds.
Expected Return:
A good Equity Fund could yield around 7% to 12% Return on Investment for a long-term holding. Although they possess a certain degree of risk. They are mostly managed by professional Fund Managers and thus are safe and reliable.
Equity Fund or Debt Mutual Fund – Which one’s better?
Government Bonds
Debt instruments issued by central and state governments are known as government bonds, and they are used for both financing and regulating the money supply. These bonds, which are often issued by the government, can be used to pay for public infrastructure and spending.
If you’re looking for a better option for a regular savings account in India than fixed deposits, government bonds may be your best bet. This type of investment has a longer period of lock-in, but it allows the investor to have a more diverse portfolio.
Expected Return:
10 Year Government Bonds yield anywhere over 7% return. These figures change over time mainly due to economic uncertainties. But, Government bonds are an extremely safe and reliable investment that yields a higher return than Fixed Deposits.
Corporate Fixed Deposit
The phrase “corporate FD” refers to a deposit held for a set amount of time at a set interest rate. Deposits given by financial and non-financial institutions are known as “Company Fixed Deposits” (NBFCs). Different companies’ fixed deposits have terms that range from a few months to a few years.
There are corporate fixed deposit choices for investors who are ready to take on a bit more risk, which is nothing more than FDs given by corporations. In comparison to a bank FD, a corporate FD’s interest rates are substantially greater. Since these investments are less safe than bank fixed deposits, investors should only put their money into established businesses.
Expected Return:
Corporate Deposits Return are highly dependent on the credit rating the company gets over its financial liquidity & viability. A highly credited company will have a higher rating such as ‘AAA’. And, such high credited bonds will yield lower returns than those that are low rated. So, in order to earn more, one needs to take risks and invest in moderately rated corporate bonds.
Fixed Income Investments & Risks Involved:
Liquid Funds
High-rated money market instruments maturing within 91 days are only eligible for investment in liquid funds, which are a form of debt funds. As a result of their flexibility, liquid funds outperform fixed deposits in many ways.
Aside from replacing fixed deposits, you may also build an emergency fund with liquid cash that you can access in times of need. Because they invest in high-quality products, liquid mutual funds are the safest type of mutual fund.
Expected Return:
As the name suggests, the liquid funds are liquid in nature. Their yield varies over time. Some well-managed liquid funds yield over 6% return per annum.
Debt Mutual Fund
Money market instruments and corporate bonds are the most common types of investments held by debt mutual funds. This type of mutual fund is deemed more secure than others since it invests in high-rated fixed-income securities. However, these funds are susceptible to both depreciation and appreciation at times.
Bond funds can nevertheless give better yields than fixed deposit accounts despite this. A great alternative to bank fixed deposits, they’re a highly liquid investment.
Expected Return:
The goal of investing in debt mutual funds is to provide consistent and reliable returns. Interest rates on savings and FDs pale in comparison to the 8-10% returns on the best debt funds. They invest in fixed-income assets that pay a constant interest rate.
What is Debt Financing? Features, Advantages & Disadvantages:
Money Market Instruments
A money market fund is a type of mutual fund that invests your money in short-term and highly liquid investments. Such instruments include cash, cash-correlated securities, and debt-based securities with shorter maturities. High liquidity and low risk are the primary goals of money market fund investments. This type of investment vehicle is also known as money market mutual funds.
Expected Return:
Savings bank accounts often have lower rates of return than money market funds. However, at times, they may not be as profitable. One can expect money market instruments to yield real returns over and above the saving bank deposit rate, and the same could reach around 3.5% to 5% per annum.
Post Office Savings
In the Post Office Monthly Income Scheme (POMIS), which is sponsored by the Indian government, investors can set aside a certain amount each month to save. Based on the applicable interest rate, a monthly interest payment is then sent to the depositor(s) on this investment.
The Finance Ministry oversees the Post Office’s provision of POMIS and a slew of other financial services. As a result, you can count on it. Low-risk, stable revenue is generated through this MIS.
Expected Return:
Mainly the Post Office Monthly Income scheme is one of the best alternatives for those who prefer safety and stability. Monthly MIS interest of 6.6 percent is paid and matures in five years at the post office.
Conclusion:
You may now broaden your investing horizons by excluding fixed-income investments from your portfolio, but you must proceed with prudence and thorough study. A good place to start if you’ve never invested before is with a fixed deposit, which offers both appropriate security and a predictable return rate.
A strong rate of return, quick liquidity, the ability to take out a loan against your FD, and so on are only some of the advantages of this type of investment.
But, there are other investments that yield better returns than FDs. In this article, we have discussed seven such investments.
Disclaimer: All the information on this website is published in good faith and for general information purposes only.
