Fixed deposit is considered the safest investment option, where investors can not only park their money for a fixed tenure but also earn regular interest on it. Lenders offer rates on the deposits based on tenures, with senior citizens getting additional rates along with the normal.
FDs usually offer an interest in the range of 6 to 8 per cent, less than the return of average mutual fund returns. Still, FDs are the preferred medium of investment and savings among the masses of India, thanks to their risk-free nature, trust in banks and NBFCs and guaranteed interest, beating inflation.
However, investors can look beyond FDs in case they want to invest in other asset classes that offer a mix of higher returns, liquidity, tax efficiency, and diversification
opportunities.
Government Bonds
A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
Besides providing a return in the form of coupons (interest), G-Secs offer the maximum safety as they carry the Sovereign’s commitment for payment of interest and repayment of principal.
They can be held in book entry, i.e., dematerialized/ scripless form, thus, obviating the need for safekeeping. They can also be held in physical form.
Benefits:
- G-Secs are available in a wide range of maturities from 91 days to as long as 40 years to suit the duration of varied liability structure of various institutions.
- G-Secs can be sold easily in the secondary market to meet cash requirements.
- G-Secs can also be used as collateral to borrow funds in the repo market.
- Securities such as State Development Loans (SDLs) and Special Securities (Oil bonds, UDAY bonds etc) provide attractive yields.
Corporate Bonds
Similar to government bonds, corporates also require capital to fund their projects. For that purpose, they sometimes issue bonds (debt instruments), which are known as bonds. It’s a kind of pledge, where a company is promising to return the capital taken from the investor upon maturity, along with offering regular interest, called coupon.
They are somewhat risky as companies may default the bond’s credit or interest rate. However, it offers higher return than FDs.
Several online Bond Platform Provider (OBPP) facilitate investments in certain fixed-income products. For example, Grip and Wint Wealth have OBPP licences and allow retail investors to buy corporate bonds.
Corporate Fixed Deposit
Corporate fixed deposits (FDs) are investment tools that companies use to raise money from investors. By investing in a corporate FD, you are essentially lending funds to the company in exchange for a fixed rate of interest. These deposits usually offer higher returns than traditional bank FDs but come with higher risk.
Before investing, it’s crucial to check the company’s creditworthiness. Credit rating agencies like CRISIL, CARE, and ICRA evaluate a company’s financial strength and ability to repay. Corporate FDs with an AAA rating are generally considered the safest in terms of credit risk.
Exchange-Traded Funds (ETFs)
An ETF (Exchange-Traded Fund) is a type of investment that works like a mix of a stock and a mutual fund. It is a collection of assets like stocks, bonds, or commodities, bundled together into one fund.
You can buy and sell ETFs on the stock exchanges just like regular shares. ETFs are also preferred by investors looking for an alternative to equities as they offer diversification and flexibility.
Instead of buying individual stocks, you invest in a basket of different companies pertaining to a particular asset class through ETFs. This helps reduce risk and makes investing easier, especially for beginners. ETFs are a smart way to grow wealth over time for investors looking forward to a low-risk option, compared to equity shares.
