There are many investment options that can offer higher returns for those seeking regular income while also ensuring the safety of their money.
The interest rates for fixed deposits are at an all-time low. If we consider inflation, the returns are negative. For someone wanting to have a regular income, fixed deposits are no longer the ideal choice. India’s premier bank the State Bank of India offers an interest rate of 5.80 per cent for senior citizens for a period of three years. The present inflation is hovering around 5.59 per cent. If the person is in a higher tax slab bracket, the returns are in negative territory. The rise in interest rates seems like a far-fetched dream, at least for now.
Fortunately, there are other options that can offer higher returns for those seeking regular income while also ensuring the safety of their money. Here are some options:
1. Senior Citizens Saving Scheme (SCSS): This scheme is ideal for senior citizens. Any individual above 60 years can invest in this scheme. The present interest rate is 7.4% payable quarterly. The maturity period is 5 years. Even benefit under Section 80C is available for this scheme. However, there is a cap of investment limit of Rs 15 lakh.
2. Pradhan Mantri Vay Vandana Yojana (PMVVY): This scheme is backed by the Government of India and offers an interest rate of 7.4%. However, this scheme has a lock-in period of 10 years. The interest is payable monthly. Considering the fact that it is backed by the Government of India, it makes an ideal choice for extra conservative investors.
3. NPS Tier II account: If the investor has an NPS Tier I account, he can voluntarily open a Tier II account. NPS Tier II account scheme G, which invests in government bonds and other related instruments, has given double-digit returns in the past one year. However, the Sec 80C benefit is not available for private sector individuals.
4. Corporate Bond Funds: Corporate Bond Funds are debt mutual fund schemes that invest in corporate bonds or non-convertible debentures. Since these funds invest at least 80% of their assets in the highest rated corporate bonds, the risk is considerably lower. These funds have delivered returns as high as 9%. Hence, they are ideal for someone looking for regular income with low risk. Another plus is that if the investor holds these funds for three years, he gets indexation benefit since these funds are classified as debt funds while computing capital gains.
5. Short Duration Funds: These funds are considered as an entry point for those investors who do not mind taking a slight risk in favour of higher returns. Since these funds earn interest income as well as capital gains, they offer higher returns than fixed deposits. These funds are not affected by short term cycles of interest rate fluctuations. These funds are able to offer steady returns and are considered as tax-efficient than bank fixed deposits. They are treated on par with debt funds, thus offering indexation benefits for long-term holders. One can withdraw funds through a Systematic Withdrawal Plan (SWP) according to his needs.
A good investment decision requires careful due diligence on various parameters. It is always advisable to seek the guidance of a qualified financial expert before making a hasty investment decision.
(By Abhinav Angirish, Founder, Investonline.in)