If you are looking to invest in fixed income instruments, you can look at other investment options, which include post office term deposits, SSY, Senior Citizens' Saving Schemes, PPF and NSC, among others.
The Reserve Bank of India (RBI) has cut the repo rate again. This is the fifth consecutive time this year that the central bank has cut the repo rate and the reverse repo rate by 25 basis points (100 bps = 1 per cent). Industry experts say that with the RBI’s repo rate cut, the interest rates on FDs are likely to fall further. For a depositor, falling interest rates imply that any new deposit made earns a lower rate and it means lower returns. Hence, if you are looking to invest in fixed income instruments, you can look at other investment options, which include post office term deposits, SSY, Senior Citizens’ Saving Schemes, PPF and NSC, among others, where the government has kept interest rates unchanged for the October-December quarter of FY 2019-20.
Here are some of the investment options, and depending on your need, find out which suits you the most:
Public Provident Fund – PPF is considered as one of the safest and secure long-term investment avenues, similar to bank FDs. PPF offers guaranteed returns that are fully exempted from tax. This makes it one of the popular investment options. The current interest rate offered on PPF is 7.9 per cent per annum, compounded annually.
PPF offers a lock-in of 15 years, enabling investors to earn higher interest on their investments. One can also extend one’s investment time frame, by five years after the maturity of 15 years. After 6 years investors can withdraw their investments, which is the minimum period of investments. The minimum and the maximum amount that can be invested in PPF in a fiscal year is set at Rs. 500 and Rs. 1.5 lakh, respectively. Investors also get the option to take a loan on the balance of their PPF account.
Senior Citizens Savings Scheme (SCSS) – Especially for senior citizens, one can make investments in SCSS starting from Rs 1,000 up to Rs 15 lakh. Individuals after 60 years of age, can make investments in the Senior Citizens Saving Scheme. Individuals after the age of 55, can also opt for the scheme if they have taken the Voluntary Retirement Scheme (VRS). This scheme comes with a tenure of 5 years. The tenure of this scheme can be extended for 3 years after maturity. The interest rate is paid on a quarterly basis and currently offers 8.6 per cent per annum.
Pre-mature withdrawal from SCSS can be made after 1 year, and the interest income under this scheme qualifies for deduction under Section 80C, whereas the maturity amount is exempt from tax.
Sukanya Samriddhi Yojana (SSY) – Either a parent or legal guardian of a girl child can make investments under this scheme. SSY account can be opened for up to two girl children and for a girl child who has not reached the age of 10 years. In the case of twins, the third girl child can also be included. The minimum and maximum investments are set at Rs 1,000 to Rs 1.5 lakh per annum, and the rate of interest offered is 8.4 per cent.
The maturity period of this account is 21 years, and either for higher education or marriage partial withdrawal up to 50 per cent of the balance can be made after the girl attains the age of 18 years. The investments made under SCSS are eligible for tax deduction under Section 80C and comes under the EEE category. The 5-year tenure POTD offers interest rate at 7.8 per cent, payable annually but is calculated quarterly.
Post Office Time Deposit – POTD is an alternative to the bank fixed deposit/term deposit. POTD is also considered as a safer option than FDs. Experts suggest the principal invested and interest earned in POTD is backed by a sovereign guarantee. The minimum deposit that investors can make is Rs 200 and thereafter in multiples of Rs 200. POTD in 5-year tenure offers an interest rate of 7.7 per cent, payable annually but is calculated quarterly.