Fixed deposits or FDs, also known as term deposits, are popular among conservative investors who seek regular income with a safety net. However, the falling rates in the current scenario have become a pain point for them.
A majority of lenders have recently reduced their FD rates in tandem with the RBI's decision to cut repo rate on multiple occasions.
Under the given scenario, investors should explore alternative investment avenues, say experts. There is a consensus that a willingness to take a slight risk can increase the returns significantly. Moreover, the returns are highly taxed efficient.
Here are the investment options one can consider in place of fixed deposit:
For those who want to invest for the short term, liquid funds could be a preferable choice. These funds provide liquidity that a fixed deposit fails to offer, explains Abhinav Angirish, founder, Investonline.in.
"Conservative investors can look to invest in debt funds that invest in highly-rated fixed income securities. These funds are relatively safer than other mutual funds. Though they are slightly vulnerable, they offer considerably higher returns than fixed deposits," he says.
Debt funds, as Nitin Shanbhag, Senior Group VP – Investment Products, Motilal Oswal Private Wealth Management says, also offer better tax efficiency than fixed deposits.
Mutual funds also offer regular income plans. This is ideal for those seeking regular income.
Fixed maturity plan (FMP)
For those who are not worried about liquidity, fixed maturity plans (FMP) can be a good option. FMPs are like fixed deposits, which are close-ended in nature.
With FMPs, one can invest in debt instruments of different issuers with the same tenor and maturity as FD.
Public Provident Fund (PPF)
Investors with a long-term horizon may consider investing in PPF.
PPF offers an EEE (Exempt-Exempt-Exempt) tax status and comes with a lock-in period of 15 years. The maturity amount and the overall interest earned during the period of investment are tax-free.
National Pension System (NPS)
NPS, introduced by the government, allows individuals to contribute towards building a pension corpus throughout their working life. Those looking to generate decent returns over the long-term can invest in NPS, say experts.
It also comes with several tax benefits.
These are possibly the best-known alternative to fixed deposits, according to ClearTax. The returns generated are slightly higher than fixed deposits and lock-in time is longer. They offer the option of diversifying portfolios.
(Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.)
First Published: IST