Investments that offer stable returns usually have negligible risks. Such investments are the best for those who are wary of market uncertainties and want assured return of their money along with the interest. Many of these are traditional investment instruments and are a favourite with a large section of the people. While there's not a single investment that has absolutely no risk, we have compiled some instruments that have a much lower level of risk than the ones that are directly related to the market.
Safest investment plans
1. Bank FDs
These are probably the safest of all investment options available in the country and offer assured returns to risk-averse investors. The rate of interest usually ranges from six to seven percent, depending upon the bank where you park your money. Most of the banks have cut their interest rates recently making FDs a rather unexciting investment option. It's important to remember that bank FDs are entirely taxable in the hand of the investor. But they offer assured returns at the end of the maturity period.
Public Provident Fund (PPF) is perhaps the most popular investment instrument for the salaried class. PPF has several advantages. One, the interest earned is not taxable; two, there are tax benefits under section 80C of the Income Tax Act. PPF is a good option to save money for your retirement. The interest, lately, is hovering around eight percent which was nearly nine percent a few years back. There are chances that the rate could be reduced further. But for long-term investors, there's nothing to worry. Expect to pocket a healthy sum of money post-retirement.
3. Debt mutual funds
These funds usually generate better returns than bank FDs as they invest most of the money in debt instruments like government securities and corporate bonds. Bank FDs and money market instruments are also used as investment vehicles. These funds are free of debt and can be subscribed by both short and long-term investors.
4. Tax saving FDs
Investing your money in tax saving FDs will fetch you tax benefits under section 80C. The invested amount is eligible for deduction from the sum of taxable income. This will go on to reduce your tax burden. But keep in mind that tax deducted at source (TDS) is applicable on interest income if it exceeds 10,000 in a financial year. You have to update the PAN details in your account, else TDS will be deducted at the rate 20 percent instead of the usual 10 percent.
5. Bank recurring deposit (RD)
Bank RDs are another popular way to invest your money and generate a regular monthly income. It's not much different from bank deposits. The only difference is that in a RD you invest a small amount of money every month in a systematic way. The RD amount is very much taxable just like FDs. So, as a tax saving instrument, it may not be a very attractive option. A RD is a forced saving because you cannot always put money in your savings bank savings account.
6. Monthly income scheme
The post office monthly income scheme (MIS) is a good option to generate assured monthly returns and is best suited for people who hate taking risks and are hunting for a safe investment. This, again, is an investment that offers no benefits. People usually park their post-retirement money, like provident fund, in MIS. The current rate of interest is 7.80%.
7. Senior Citizen Savings Scheme (SCSS)
The government, of late, has taken up several social security measures for various sections of the society and the SCSS is one of the most important ones. As the name implies, the scheme is for those above 60. But you can invest your money in the name of any senior citizen in your family. The interest offered now in 8.7 percent and is revised by the government every quarter. An SCSS account can be opened in any post office or nationalised and private banks. While it offers stable returns, the amount is taxable.
8. Fixed maturity plans (FMP)
These schemes usually have an investment tenure of less than one year and are considered as a safe investment option. You can renew your investment after one year. These are mutual funds that are invested in safe AAA marked instruments. A FMP is a good idea if you want to generate wealth for the mid to long term. It's only then you will get to see the benefits. FMPs are fully taxable in the hands of the investor and your returns will get reduced. But this is a safe bet considering the security of your money.
9. Non-convertible debentures (NCDs)
Many companies frequently issue NCDs and company deposits (CDs). The safety of your investments will depend on the performance of the company. However, if you are scouring for a stable investment that offers between 11 to 13 percent rate of interest, with negligible risk, then NCDs could be the preferred option. NCD holders are given repayment preference if the company goes into liquidation.
10. Tax free bonds
These are issued every year with a minor change to the existing ones. Besides tax benefits, they provide returns ranging from 8 to 8.5 percent per annum. These are secured investments that are managed by the government.
Naval Goel is Founder & CEO PolicyX.com