When it comes to selecting the right investment to achieve their financial objectives, Indian investors have several options. Many, however, chase higher returns while overlooking the costs attached to those investments.
The costs associated with investments can substantially reduce returns over a long-term horizon of 20 to 30 years, with even minor differences in returns significantly affecting the final kitty. The point to consider is that costs eat into your returns.
Why Most Investors Don’t Build Their Own Portfolio
The issue arises because most investors do not build their own portfolio. What most investors lean on is an intermediary, who could be an advisor, a distributor, or the neighbourhood agent who has known the family for years.
This is not inherently a problem. A good advisor enhances your portfolio’s value through effective planning and investment for each of your life stages, and strategic investment allocation across different asset classes.
The issue arises when incentives are misaligned, leading to situations where the individual managing your money benefits more from specific products over others.
Is Your Advisor Selling You, or Serving You?
Many products in the Indian investment ecosystem are still commission-driven. The question is, are they best suited to the investor’s needs, or are investors being sold products that primarily suit the distributor?
A way to check this is by asking pointed questions on costs and alternatives. The response is rarely direct, often steering the conversation toward the downsides of alternative products rather than offering a fair comparison.
This is not incidental. A distributor’s nudge to sign on the dotted line is almost always driven by a vested interest: the commission earned on the product being sold.
Here are a few investment products that come with low or zero commissions, and hence are rarely recommended. Some of them are government-backed, while many are also available with private companies.
1. RBI’s Bond That Offers Over 8%
If you are looking for a fixed income investment with the highest safety offering over 8% returns, look no further than the RBI Floating Rate Savings Bond (FRS Bond). The FRS Bond is among the highest fixed income government-backed securities. The tenure is for 7 years, with interest payable half-yearly.
According to the new rules, the coupon and interest rate of the bond would be reset half yearly, starting with January 01, 2021, and the coupon and interest rate will be set at a spread of (+) 35 bps over the prevailing National Savings Certificate (NSC) rate. The coupon rate on RBI Floating Rate Savings Bond for the period July 01, 2026, to December 31, 2026, and payable on January 01, 2027, remains at 8.05% (7.70%+0.35%), unchanged from the previous half-year.
2. Buying Government Bonds Without a Middleman
The 10-year G-Sec currently trades at 6.95%, offering ‘risk-free’ returns to Indian investors. For those who wish to invest in government securities, the RBI’s Retail Direct scheme is a one-stop solution for individual investors to participate in the government securities market.
Under this scheme, individual retail investors can open a Gilt Securities Account, known as the Retail Direct Gilt (RDG) Account, with the RBI. Investors can place bids under the non-competitive scheme to participate in primary auctions of government securities, and can also buy and sell government securities in the secondary market.
3. Why Agents Rarely Push Term Insurance
Term insurance plans are not ‘investments’ but pure-risk cover plans that are low-cost and offer high coverage. This means, for a much lower premium compared to an endowment insurance plan, one can get a high sum assured, the life cover. The premium that one pays goes entirely towards providing life cover.
Term insurance plans have no maturity value at the end of the chosen term. Therefore, they are not a savings plan but act as an income replacement tool. If the purpose is to insure one’s life with a high life cover, term insurance plans fit the bill like no other.
The issue is that premiums are so low that many intermediaries, such as individual agents, brokers, and corporate agents, are unlikely to sell them. Commission on term plans can be over 35% of the first year premium, but since the premium itself is low, the actual rupee payout to the distributor remains modest, making it a less attractive product to push.
4. Small Savings Schemes With a Sovereign Guarantee
There are several small savings products like PPF, Senior Citizen Savings Scheme (SCSS), NSC, Monthly Income Scheme, Sukanya Samriddhi Account and others that are distributed by post office agents, and are also available with banks. Many of these small savings products carry competitive fixed interest rates and all of them carry sovereign guarantee.
Public Provident Fund (PPF) has remained a time-tested investment instrument that has helped generations create tax-free income over several decades. Similarly, SCSS and Monthly Income Scheme cater to those looking for regular income with full safety of capital. Sukanya Samriddhi Account is aimed at savings for a girl child and carries the highest tax-free return among all products.
5. Getting FD Returns With Savings Account Liquidity
You keep money in a savings account for liquidity needs, but it earns less interest than the rate offered by the same bank on a fixed deposit (FD). Since FD rates are typically higher than savings account rates at most banks, why not make the best of both worlds?
A sweep-in bank FD is a bank account that offers the higher interest rate of a fixed deposit while keeping funds as liquid as a savings account. Any balance beyond a set threshold automatically gets swept into an FD, earning FD-level interest, yet it remains withdrawable at any time, just like money in a regular savings account.
At times, bankers may encourage you to consider sweep-in bank fixed deposits (FDs), but this behavior could be driven by their internal targets rather than any commission going out of your pocket.
6. Direct Plans Could Save You Lakhs Over Time
And then, there are the hugely popular mutual fund schemes. All mutual fund schemes offer two plans, direct and regular. The difference lies in the costs embedded into the structure. In a direct plan, the expense ratio is lower compared to a regular plan.
This difference in the expense ratio is largely what the distributor gets paid as commission. In contrast, a direct plan allows investors to buy from the fund house without intermediaries, resulting in lower expenses. Both plans feature the same fund manager and investment strategy, with the primary distinction being that direct plans typically have fees that are 0.5% to 1% lower than regular plans.
The difference in savings could be large. Choosing a regular mutual fund over a direct plan for a Rs 10 lakh investment over 20 years can result in a significant loss of potential returns due to higher expense ratios, with the hidden cost compounding to approximately Rs 15 to 26 lakh from even a 1% difference.
Similarly, investing Rs 10,000 through a Systematic Investment Plan (SIP) in direct plans can grow to Rs 36 to 42 lakh, compared to Rs 34 to 39 lakh in regular plans, resulting in a potential loss of Rs 2 to 4 lakh over a decade due to compounding effects.
However, unlike PPF, SCSS or bank FDs, mutual funds are market-linked investments and require informed decision-making, given that returns are not fixed or guaranteed. Therefore, direct plans are better suited for people who want to cut costs, are able to conduct independent research, and manage the portfolio all by themselves.
Those who are not in a position to decide on the right scheme, take appropriate action during market swings, or evaluate options independently, and who prefer professional guidance, regular plans are the right fit.
7. Index Funds Are Winning Over Indian Investors
An index fund mirrors an index in its stock selection and percentage holdings, with no input from a fund manager. As a result, its Net Asset Value (NAV) moves in accordance with the tracked index.
Typically, direct index fund expense ratios range around 0.2%, in contrast to regular plans, which can be between 0.5% and 1%. The difference in the expense ratio can help save a sizeable amount in the long run.
Indian investors are latching on to index funds in a big way. According to the AMFI-Crisil Factbook 2026, the share of index funds in retail passive AUM jumped from 11.5% in March 2021 to about 55% in March 2026.
8. Atal Pension Yojana, a Fixed Payout for Life
The Atal Pension Yojana (APY) is a pension plan aimed at saving for retirement. APY is a defined benefit-deferred pension plan. The guaranteed minimum pension is known from day one of opening the account, unlike market-linked options where the payout is uncertain.
9. National Pension System, Built for Retirement
National Pension System (NPS) is another long-term investment scheme aimed at retirement savings. On retirement, called the vesting age, one can withdraw a certain portion of their accumulated corpus tax-free. The remaining balance must be used to purchase an annuity from a life insurance company. NPS allows allocation of funds among equity, debt, or a combination of both.
Both NPS and APY are regulated by the PFRDA, but while the former is market-linked, the latter offers a fixed pension for life.
Bottomline
Cost, not just returns, decides how far your money actually goes over the long run.
Whether it is an FRS Bond offering over 8%, government securities bought directly through RBI Retail Direct, low-cost term insurance, sovereign-backed small savings schemes, NPS and APY for retirement, sweep-in FDs for liquidity, or direct and index mutual fund plans, the common thread is the same: these products carry little to no distribution commission, which is largely why they see less push from intermediaries.
For investors willing to do a bit of independent research, these low-cost options can meaningfully improve long-term outcomes without adding complexity.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. The interest rates, rules, and figures mentioned in this story are based on information available from official government and regulatory sources at the time of writing. Readers should consult a qualified financial advisor before making any investment decisions.
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