Risk and returns are highly correlated, and every investor wants to earn high returns on their investments. But highly volatile and risky investments like stocks may result in a restless life for investors with a low-risk profile. According to the consumer spending outlook report, 31% of Indian investors will prefer mutual funds over equities in 2022. Debt mutual funds can reduce the degree of risk for investors. The simple reason is to take manageable risks only. If you are a risk-averse investor looking for a safe investment and do not want to panic about the market movements.
Here are the safe investments to take the first step towards curating a good financial plan and securing your future.
FDs are considered the safest financial assets and have been rated by different rating agencies on their creditworthiness these agencies are CRISIL, CARE, ICRA, and others. Corporate Fixed Deposits (FDs) offer several benefits, including guaranteed returns, flexible tenor, premature deposit, and many others. Investors seeking to earn fixed returns with capital protection can invest in these FDs.
Corporate FDs with reputable non-banking financial corporations (NBFCs) and HFCs (Housing Finance Companies) are the solution for risk-averse investors worried about declining FD interest rates. NBFCs offer higher FD rates as compared to bank FDs. NBFCs offering FDs adhere to strict rules of the Reserve Bank of India (RBI). Therefore, Fixed Deposits are considered safe for investors.
If you are an investor, whether an Indian citizen or NRI, intended for wealth creation in the long run but hesitant to enter the capital market due to uncertainty and fluctuations, corporate FDs are the option for you.
To illustrate, if you are a senior citizen who wants to invest Rs.10 lakhs in an FD for 3 years, your returns with an NBFC and a bank will be as follows:
Corporate FD:
Interest rate
7.05%
Interest payout
Rs. 2,26,761
Maturity amount
Rs. 12,26,761
Bank FD:
Interest rate
4.50%
Interest payout
Rs. 1,43,674
Maturity amount
Rs. 11,43,674
2. Bonds
There are different types of bonds in India. Investors looking for safe investment can look at government bonds. These are debt instruments issued by central or state governments with a long-term maturity of between 5 – 40 years. A fixed-rate bond can offer you 7-9% interest. There are floating rate bonds, and tax-free bonds also.
These government securities ( G-secs ) are preferred by low-risk profile investors for the stability of funds with the promise of assured returns. It offers a regular return disbursed every six months.
The Indian government understood the increasing interest in retail participation in G-secs and has simplified the investing process to invest in bonds. If you hold your government bonds for less than 12 months, short-term capital gains (STCG) will be taxed as per your slab rate. Otherwise, long-term capital gains from government bonds are taxed at the rate of 10% (without indexation benefit)
3. Public Provident Fund
The Public Provident Fund (PPF) is available with the post office and authorized nationalized private banks. Individual Indian citizens can invest in PPF accounts – No Hindu Undivided Families (HUFs) and Non-resident Indians (NRIs) investors.
The investment has the government’s back and offers guaranteed returns. The prevailing interest rate is 7.1%. The interest is credited to your PPF account every year, which is calculated on the minimum account balance in a month between the 5th and 30th of every month.
PPF accounts have a lock-in of 15 years. You can further extend the scheme in blocks of 5 years. Investors can apply for a loan against PPF investments between the third and fifth years of investment.
You can invest in a lump sum or 12 multiple installments between Rs. 500 – 1,50,000 in a financial year.
PPF Investment up to Rs 150,000/- qualifies for tax deduction under Section 80C, Income Tax Act. The PPF returns are entirely exempt from tax.
4. Debt Mutual Funds
Debt funds invest in fixed-income financial securities. It is considered safer as compared to equity funds as equity allocation in debt funds is zero %.
The risk involved in debt funds depends on their type and the interest rate fluctuations. Long-term debt funds may offer greater returns when interest rates are declining. Short-term debt funds offer higher returns when interest rates increase. You should consider mutual funds with a higher credit rating.
If you hold a debt fund for less than three years, it attracts long-term capital gain (LTCG) to be taxed at @20% with the indexation benefit or 10% without indexation. Otherwise, it will be added to your total income in a financial year and taxed as per your tax slab. The rate of returns can be between 7%-9%. Long-term investors can utilize these funds.
5. National Pension System
The National Pension Scheme (NPS) is a voluntary contribution to build up a significant retirement corpus. It is an investment with tax-saving benefits where you can get tax deductions under Section 80C of the income tax, 1961, up to Rs 2 lakh in a financial year.
You have the option to control the diversification of your funds across different asset types with the active participation option. If you want to diversify your investments automatically based on your age with the auto choice option. The available asset classes include government bonds, Equities, corporate funds, Real Estate Investments Trust (REIT), Alternative Investment Funds (AIFs), and others. NPS returns depend on the performance of the asset that you choose to invest in.
Thus, you can rely on these investments with a steady growth of funds and an almost certain return on investments. Even aggressive investors looking to bring a balance in their investment growth plans prefer these safe investments. Stay invested in safe investments to achieve financial goals with confidence.
BONDSINDIA brings up-to-date information when IPOs go live, fixed deposits with higher interests, and bonds with a competitive price before anyone else.
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