Your FDs Earn 4.3%. Want To Do Better?

Interest rate returns on bank deposits have come down. From 8-9% PA a couple of years ago, bank deposits now earn you around 6-7%. If you’re in the 30% tax bracket, your post-tax returns on an SBI fixed deposit offering 6.25% would be an unappetizing 4.37%.

Bank deposits provide high safety of capital, assured returns, and liquidity. If you are a risk-averse investor, where should you lock your money? Here are some options.

Small Bank Deposits: Several small banks offer competitive deposit rates of 0.75% to 1.5% above SBI’s offering. You can apply for these deposits online.

Liquid Mutual Funds: These are MF schemes that invest your money in short term debt instruments. They are low-risk, provide instant redemption, have no exit load. Returns: 8-9% since 2007.

Corporate Deposits: These are deposits provided by public and private sector companies with tenures typically between 1 to 5 years. The returns are marginally higher than bank deposits and for senior citizens. Check the credit rating, go for deposits rated AAA or AA. 

Debt Mutual Funds: Through these schemes, you invest in a mix of fixed income instruments such as government bonds, corporate deposits, non-convertible debentures, money market instruments, fixed deposits, etc. Use SIPs for best results. Be aware of the expense ratio and exit load before redemption. Returns: ~10% since 2007.

Monthly Income Plans: These are hybrid mutual fund schemes that invest a majority (70-90%) of your corpus in debt instruments as described above, and the rest in equity. Use SIPs for best results. Returns: ~10% since 2007.

Government Bonds: The 8% Government of India bond has a tenure of six years and offers 8% interest PA. Apply through trading accounts and nationalized banks.

Small Saving Schemes: There’s no beating these. The humble Public Provident Fund still provides 7.9% PA, tax-free. The Senior Citizens Savings Scheme and Sukanya Samriddhi Scheme are providing an impressive 8.4% with EEE status. These are best for long-term investment goals.

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