Wealth Builders: Five Best Alternatives To Fixed Deposits for Indian Investors

Fixed Deposits (FDs) are one of the most trusted investment options in India. They are immune to market fluctuations and offer guaranteed returns. It remains a top choice for risk-averse investors as the FDs offer a secure return at a pre-defined interest rate for a specified tenure.  

However, it is not easy to beat inflation with FDs. That's why, increasingly, many people are looking for options that can offer them better returns than FDs. Here are some of the alternatives to FDs that you can consider investing in. 

Top Five Alternatives To Fixed Deposits

Debt Mutual Funds

Debt mutual funds invest in fixed-income securities like government and corporate bonds, treasury bills (T-bills) and commercial papers. They are less volatile than equity funds and provide steady returns, making them a low-to-moderate-risk alternative to FDs.

Public Provident Fund (PPF)

It is a government-backed savings scheme with a 15-year lock-in period. PPF offers guaranteed returns and tax benefits. It is a good choice for those who are looking for a long-term, risk-free investment. Deductions of up to Rs 1.5 lakh can be claimed under Section 80C of the Income Tax Act, 1961. The PPF interest rate currently stands at 7.1%, which is higher than several FD schemes offered by banks.

Real Estate Investment Trusts (REITs)

REITs allow investment in real estate, such as commercial properties, without owning physical assets. REITs have a potential for 6% to 8% annual dividends plus capital appreciation, often outpacing FD returns.  They are traded on stock exchanges and are a lot more liquid than FDs.

Government Securities

Government securities can be used for both short-term and long-term investment. Common examples of government securities include T-bills and government bonds. T-bills have maturity periods of 91 days, 182 days and 364 days. On the other hand, government bonds are available for a maturity period of up to 40 years. 

National Savings Certificate (NSC)

NSC is a government-backed scheme with a five-year lock-in period. It is available through post offices. It's a secure option for investors seeking stable returns with tax benefits. Investment in NSC is eligible for Section 80C deductions. The interest rate for NSC currently stands at 7.7% per annum, which is revised quarterly by the government.

To conclude, while fixed deposits remain a reliable choice for conservative investors, they also come with serious limitations. You can explore the alternatives to FDs according to your risk appetite, investment horizon and financial goals. By diversifying your portfolio, you can increase your returns while minimising risks.