FIXED DEPOSITS… umm sounds familiar right? The age old investment option considered to be the safest! Remember those times when fixed deposits were the primary investment option…
FD’s were made for children’s education and marriage…
But wait a minute! Can fixed deposits really be such a good investment? Can it really fetch adequate returns?
The truth is “Not Really"! Especially if you have over allocated funds to FDs over a long time, it will actually lower your return income as beating inflation might be a serious challenge.
FDs are preferred by investors who are basically terrified by the terms “Markets” or “Mutual Funds” in simple words the conservative investors with a very low risk appetite. Another set of people are the ones needing a regular source of income at low-risk, essentially meaning when one has accumulated all wealth and just needs a safe vault to park money post retirement.
But at this age and time when everything is quick and dynamic, it is extremely important to beat inflation and consistently earn great returns to achieve all financial goals. So for this, a smart mix of investments is a better option than the FDs.
“Early bird gets the worm” applies here, start planning early and if you are at a young age with slightly higher risk appetite then all the investment alternatives can be explored effectively to fetch better returns.
Every investment option suggested here might not suit every individual majorly due to the life stage, risk appetite, goals, income and lock-in periods. However, there are a host of options to set your finances right!
1. Debt Mutual funds: Yes yes we get it, isn’t it all about the stories you have heard from everyone around you? But mutual funds pay off big time for the risks associated and debt mutual funds invest in comparatively secured instruments like corporate bonds and government securities. With long term investing and by selecting the right fund, you can beat fixed deposits by a big margin. The best part is they are highly liquid too! Guess what, the 5 year annualized returns for average risk funds have been 10-11% in contrast to the average 5-6% effective returns earned through FDs.
2. Equity funds: The same story repeats here, but the risk return trade off is very huge. They have proven to beat inflation comfortably and are known for returns that are predominantly higher than fixed deposits. The risk level involved with equity funds is lower when it comes to long-term investments. We are sure you will be amazed by annualised returns of 14% - 15% in many funds.
3. Corporate Fixed Deposits: For those willing to take that little more risk has access to CFDs, they are nothing but FDs offered by corporate entities. The public can invest in them and provides a flexible tenure but the only downside is they are not as secure as traditional bank FDs. A lot depends on the business model of the company, so choose wisely.
4. Fixed Maturity Plans: These invest in securities related to debt but only in those with coinciding maturities. For investors with set goals, these are effective options. For instance, if a plan has a 3 year maturity time then it invests only in the bonds and securities with maturity of not more than 3 years. The funds are locked and flexibility to redeem is absent so take the right call while choosing one of these. But on the bright side, the risks of investing in these are very low and assure a comparatively higher return.
5. Government Bonds: This option is perfect for all those with a conservative approach like the ones who prefer investing in FDs but the returns generated by government bonds are only slightly higher than a fixed deposit. The lock-in time for these investment instruments is longer, but they offer the investor a good option of diversifying their portfolio.
6. Public Provident Fund: Another common investment option backed by conservative investors.This is a long-term fixed return investment product that is eligible for tax benefits under Section 80C. Currently, the interest offered on PPF is 7.9% pa*. There are some banks that may provide you with a higher interest rate on fixed deposits in comparison to PPF, but the post-tax return would be relatively lower. PPF offers tax exemption on the invested amount, interest income and the maturity corpus. There is a lock-in period of 15 years, so that restricts the liquidity.
7. Pradhan Mantri Vaya Vandana Yojana (PMVVY): This is useful for senior citizens who need regular income and are in lower tax brackets. It is an attractive investment due to the 8% - 8.3% returns (based on scheme) but it has a lot of terms and conditions to adhere. And the downside is it doesn’t provide tax benefits on the investment or the pension earned.
With so many investment avenues available, it makes things a little easier to keep up with the ever increasing expenses and wants. Consider ditching your fixed deposits and step into the world of smart and effective investments.
Disclaimer: These views are for educational purposes all these options should be properly analysed before starting investments directly and regular check is needed to ensure the validity of information.
