Fixed deposits are taken as one of the best investments for those who don’t want to take any risk. However, in recent years there have been some fixed deposit alternatives that are also gaining popularity among people. Let’s discover the reason, shall we? Alternatives, as we call them, are an excellent option for a risk-averse or conservative investor. It also seeks regular income from the fixed deposits, not to mention how convenient and hassle-free. The only thing it takes is quite an amount of money from you for the fixed tenure. At the same time, you can earn some assured interest as well.
You do need to remember that fixed deposits are not meant for market fluctuations. But, as the investment environment is always dynamic and changes, people are now also willing to take more risks for better options that are tax-efficient because it’s worth it! However, if you are considering choosing other options as well instead of a fixed deposit. There are a number of funds introduced in 2022 you can choose from.
Some Alternatives to fixed deposits
1. Debt Mutual Funds
Debt Mutual Funds are one of the best places to invest in other secured investments like government securities, corporate bonds, and money market instruments. These are taken as comparatively safer options than other mutual funds if it comes to the high-scale fixed income securities. As every coin has both sides, this mutual fund is no exception than that. So, these funds are sometimes vulnerable to appreciation and depreciation.
But even so, debt funds are eligible enough to provide much higher returns than fixed deposits. They are entirely liquid, and that makes them a perfect alternative to fixed deposits.
2. Corporate Fixed Deposits
These Deposits are for those who are slightly inclined to risk-taking. A person can choose from Corporate deposit options, which have nothing else but an FD to offer by the corporates. You must know that the corporate FD comes with higher interest rates than a bank FD, which has flexible tenure options. For example, fixed deposit interest rate of Bank of India is 2.85% to 5.20% p.a to regular citizens and the tenures ranging from 7-10 days. However, you should also note that the downside to this kind of investment is that it is not as secure as the bank offers in regard to their fixed deposits. Therefore, investors must select to invest only in the well-established companies.
Fixed maturity plans generally invest in securities and debt instruments with tallied maturities. For instance, if any fixed maturity plan has a maturity tenure period of one year, there is a chance it may invest in securities, bonds, and other similar options that have a maturity time of less than a year. However, it has some drawbacks, like the flexibility of easy withdrawal is not possible at this moment. And you can get access to the fund only after they mature. Therefore, remember, be careful while deciding on investing in different types of FDs, as your money would be carefully locked in until maturity.
Fixed maturity plans are indeed an excellent alternative to the fixed deposits. Although, when it comes to liquidation, it is not very easy. But look at the bright side! The risk coupled with investing in these deposits is extremely low; therefore, they assure a relatively higher return.
4. Government Bonds
In India, Government Bonds are one of the best-known alternative options when considering an alternative to fixed deposits. Even though the returns are procreated by government bonds and are a wee bit higher than the fixed deposits. The close-in time for these types of investments is longer than one might think; however, the bonds provide the investors with the option of diversifying their portfolio in a great deal.
5. Liquid Funds
Liquid funds are another type of debt fund. It only has options like high-scale money market instruments with a mature period of ninety-one days. One of the most significant advantages of liquid funds is that they offer liquidity, which the fixed deposits are unable to offer. That is why you can not only use it as an alternative to fixed deposits but also as a medium to deal with the emergency corpus to fall back on a certain moment of crisis. Liquid funds fall under the category of safer choices as they work with and invest in high-quality instruments.
6. Equity Funds
There are certain types of mutual funds which are great choices to beat the inflation. However, it requires a portfolio manager while investing the investor’s funds if you opt for a business’s ownership. These are also called equities which are more likely to be the common stocks of publicly traded companies. While they form amazing alternatives to the long-term fixed deposits, they are also known for the returns that are dominantly higher than fixed deposits. That makes these equity funds less vulnerable to the risks if you want to make any long-term investments.
7. PMVVY Scheme
Indian Government is also taking care of the senior citizens when they opt for the alternatives of the fixed deposits. For example, PMVVY is a government-subsidized pension scheme solely for the senior citizens. In recent years, this scheme is providing an assured return of 7.66% pa. As the interest rates change as per the interest pay-outs, the scheme also gets affected. However, you cannot get any tax benefit from this scheme. But any individual can get taxed at applicable rates, and TDS won’t be dedicated. So, from now on, you can invest in PMVVY via LIC India.
On a final note, now that you are well aware of the best alternatives to the fixed deposits, you can make an informed decision that suits you best and helps you diversify your investment portfolio. On the other hand, you cannot argue how safe and reliable fixed deposits are compared to the alternatives, so they will remain as the best option if you are just about to start.