For those in the higher tax brackets looking to lock-in money for the long-term, can look at tax-free bonds, as the interest income is not taxable. If you want to invest, look out for issues, as they may not always be open.
To ensure effective and timely implementation, the government has asked lenders to credit the amount to eligible borrowers latest by November 5.
Fixed deposit interest rates are on a downward trajectory. With the subsequent cuts in the repo rate, banks have also been reducing their FD rates, including large banks such as SBI, ICICI, HDFC Bank, etc. The State bank of India is now offering interest rates between 2.9 and 5.4 per cent across tenures ranging from 1 year to 10 years.
This fall in interest rate has become financially stressful for many, especially those who depend on bank FDs for regular income. These generally include the retired people, who have been renewing their FDs at a lower rate. With such low returns from bank FDs, they have now become unattractive for most investors.
However, there are some other investment options offering higher returns than bank FDs that investors can look at. For instance, small finance banks’ fixed deposits offer higher interest rates as compared to bigger banks.
Here are some of the other investment options that investors can look at:
Small finance bank FDs – Small finance banks, such as Jana Small Finance, Utkarsh Bank, etc. are seen to offer higher interest rates to customers, as compared to bigger banks. For instance, these small finance banks generally offer an interest ranging from 8.50 to 9 per cent on various tenure fixed deposit, especially to attract customers. On top of that, senior citizens get additional 50 bps (basis points) higher on such deposits as compared to general customers.
These banks are regulated by RBI and are covered under the Deposit Insurance and Credit Guarantee Corporation of India. Hence, experts say they are safe and can be easily opted for by conservative investors. Keep in mind, interest from small finance bank FDs are taxable as per the investor’s slab rate.
Post office schemes – Among the nine long-term schemes available under the post office schemes some of the popular includes PPF, Post office time deposit, Senior citizen savings scheme, and Monthly income scheme. The interest rates on these small saving schemes are revised quarterly.
PPF, the long-term investment option comes with guaranteed returns and offers a return of 7.10 per cent. It also falls under the EEE category (exempt, exempt, and exempt). The senior citizens saving scheme (SCSS) whereas offers an interest rate of 7.40 per cent, and the national savings certificate (NSC) offers an interest rate of 6.8 per cent along with a tax break u/s 80-C. The 5-year post office monthly income scheme (MIS) investment comes with a maximum cap of Rs 4.5 lakh under single ownership and Rs 9 lakh under joint ownership. MIS offers an interest rate of 6.6 per cent payable monthly.
Bonds – Tax-free bonds are usually long-term issued for tenure ranging from 10 to 20 years tenure. These bonds are issued by the government, from time to time. As they are issued by government entities the risks of these bonds are lower.
Additionally, RBI Floating Rate Savings Bonds comes with a maturity of 7 years. The current RBI Floating Rate Savings Bonds offers an interest rate of 7.15 per cent for the period of July 1 to December 31, 2020, payable on January 1, 2021. The interest rate offered on the savings bond is reset every 6 months. Unlike tax-free bonds, these are fully taxable and tax will be deducted while making payment of interest on the bonds. These bonds also offer special premature withdrawal facility for senior citizens.
Experts say, for those in the higher tax brackets looking to lock-in money for the long-term, can look at tax-free bonds, as the interest income is not taxable. If you want to invest, look out for issues, as they may not always be open.
Mutual Funds – When it comes to investing in mutual funds, investors can look at Arbitrage mutual fund and Debt mutual funds. Arbitrage MFs leverages the differential in price between derivative markets and cash. On the tax front, however, they are like equity funds.
On the other hand, Debt mutual funds provide indexation benefit, hence, the tax outgo of investors are lowered. Investors can also choose from multiple categories of funds, suiting their risk profile.