At a time when interest rates on bank deposits and savings accounts are falling, most individuals are looking for alternative investment tools to get adequate returns. FDs have emerged as a popular investment option among risk-averse investors that can provide high returns along with safety and stability of your investment.
Bank deposits constitute a dominant share of investments in FDs. However, the falling FD interest rates in recent times have been a reason to worry. The contemporary policies and guidelines of the Reserve Bank of India (RBI) have also led to a drop in the interest rates while surplus bank liquidity has resulted in low FD demands.
This presents an opportunity for investors to explore alternative options for investing. Today, there is no dearth of fixed income products in India’s financial markets, though the risk and rewards depend upon the investor’s preference. Here are few alternative investment avenues where you can invest while shifting from bank FDs:
Company Fixed Deposits
Company deposits are alternative fixed deposits issued by NBFCs and manufacturing firms. They generally offer high FD interest rates by 100-200 basis points (bps) when compared to bank FDs. These higher rates attract many investors, especially senior citizens to shift to NBFCs for their investment.
With NBFCs Fixed Deposit, you can park your savings to earn as much as 8.40% on your investment. You get the flexibility to choose a tenor between 12 to 60 months and frequency of interest payout depending on your liquid needs. Use an FD calculator to evaluate the returns on your investment in advance.
You can also look to invest your money in liquid funds offered by asset management companies. It is a collection of stocks and bonds managed by investment professionals. The fund may have a marginally higher yield than bank deposits, but the downside is that the investments are exposed to market fluctuations.
This is the reason why most risk-averse investors prefer safe options like company deposits or FDs. Equity funds, which often promises high returns are more prone to risk whereas debt funds are less risky as they invest in government bonds. However, the credit risk is still a potent one while investing in mutual funds.
National Savings Certificates
National Savings Certificates (NCS) is another safe choice of investment if you are looking for a long-term savings tool. Currently, it provides 7.6% interest on your investment along with tax benefits which is still better than bank FDs.
However, liquidity in such investments is limited as they come with fixed periods of 5 or 10 years without the option of a pre-mature withdrawal. Also, you don’t have the option to choose a convenient tenor unlike fixed deposits.
Companies issue non-convertible debentures (NCDs) to raise long-term funds. They are of two types – secured and unsecured. Secured NCDs are backed by assets which can be liquidated to repay the investors in case the company fails to perform.
Unsecured NCDs offer higher interest rates for investors but are comparatively risky since you may lose all your money in case the company defaults. NCDs may come with different tenor and interest rates as decided by the company. Though, it may provide returns on your investment, NCDs are not considered as a stable and safe option when compared to Fixed Deposits (FDs).