An investment well-made can become the currency of the future. The cost of living is rising at a rapid rate in a hectic lifestyle, and one has to meticulously plan one’s savings in such a way that it delivers satisfactory returns at the same time preserving one’s precious capital.
There are many low-risk investment options available even for those who do not understand the intricacies of finance. By investing your money judiciously, you can expect decent capital appreciation while protecting yourself from the unpredictability of the markets.
Why do investors favour low-risk investments?
The low-risk investment is the best bet for someone who doesn’t want to wade through unpredictable market fluctuations or someone who wants safety and stability after the global pandemic. These investments provide the opportunity to diversify your portfolio in a safe way.
1. Public Provident Fund (PPF)
PPF is a government-backed scheme that ensures savings while providing tax relief. The current interest rate on PPF is 7.1% compounded annually. PPF falls under EEE status, meaning that the amount invested, interest earned and maturity amount are all tax-free. As mentioned before, PPF investments are tax-deductible under Section 80C up to Rs 1.5 lakh per year.
2. National Savings Certificate (NSC)
NSCs are saving bonds offered by India Post. NSC too qualifies for deduction under Section 80C and offers 6.8% interest compounded annually. Though there is no maximum limit to investing in NSC, only investments worth Rs 1.5 lakh annually qualify for a tax deduction. NSC too offers guaranteed returns and complete capital protection. However, the maturity amount is taxable, and since there is no Tax Deduction at Source (TDS) on NSC, it is the duty of the taxpayer to pay income tax on the maturity amount.
3. Voluntary Provident Fund (VPF)
VPF is ideal for someone having low-risk appetite. Earlier, the scheme was in EEE Category meaning that the amount invested, interest earned and maturity amount were all tax-free. But in the Budget 2021, the government proposed to tax the interest earned on employees’ contributions above ₹2.5 lakh. However, considering the interest rate of 8.5% offered by VPF, even the post-tax returns amount to 5.95%, which is still higher than traditional bank fixed deposits. However, note that employers are under no obligation to contribute to the plan. Also, once the plan is selected, it cannot be discontinued or terminated before the base tenure of 5 years is completed.
4. Liquid Funds
Liquid funds are a type of mutual funds that invest in securities with a residual maturity of up to 91 days. These funds invest in money market securities like Treasury Bills, Certificates of Deposits, Commercial Papers, etc., and carry very low risk. Liquid funds have delivered better returns than a savings account and in some cases fixed deposits too. Its 10-year return range from 6.41%-7.25%. As the name suggests, you can park your money for a few days to a few months. Taxation-wise, indexation benefit is available for Long Term Capital Gains (LTCG) while short-term gains are taxed according to the tax slab of the individual.
Gold too has been an all-time favourite of investors. It is an
accepted standard internationally. It is relatively unaffected by market shocks and acts as a hedge against inflation. Gold mutual funds can be an ideal way to invest in gold. The 3-year CAGR of gold funds range from 11.4%-12.8%. Given the uncertainty around the pandemic, it would be wise to invest in gold funds.
It is possible to get good returns if the money is invested in the right way and in the right place. Even with low-risk investments, it is possible to generate wealth and achieve your financial objectives. However, make sure to consult a good financial advisor before making hasty decisions.
(By Abhinav Angirish, Founder, Investonline.in)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.