Fixed deposits are the best form of investment when it comes to secured investing. However, some of the fixed deposit alternatives have gained popularity in recent years. Let us explore why.
An excellent option for the conservative investor, it seeks a regular income from a fixed deposit. It is convenient and hassle-free, requiring a minimum amount for a deposit for a fixed tenure, earning assured interest that is paid out to the account holder. It is also a suitable means of savings that are not exposed to market fluctuations.
With the changing investment environment, however, people are ready to take more risk for better returns that are also tax efficient. And for those considering options other than a fixed deposit, there are several funds one can choose from.
Alternatives to Fixed Deposits
Debt Mutual Funds
Mutual funds that are invested in comparatively secured investment options like corporate bonds, government securities and money market instruments are referred to as debt mutual funds.
Guaranteeing fixed returns, they are traded on the markets, with a fixed maturity date. However, they are vulnerable to depreciation and appreciation. But despite this, they offer returns equal to or higher than fixed deposits without the risk of losing a considerable amount of your money. They are highly liquid and can be an excellent alternative to fixed deposits.
These are a type of mutual funds and are great at beating inflation. It requires a portfolio manager to invest the investor’s funds for ownership of a business, which is also known as equities, like common stocks of publicly traded companies.
Forming an excellent alternative to the long-term fixed deposits, they are known for returns that are predominantly higher than fixed deposits. The risk level involved with equity funds is lower when it comes to long-term investments.
Corporate Fixed Deposits
For investors willing to take a little more risk, one can choose from corporate fixed deposit options which are nothing, but an FD offered by corporates for investment by the public.
The interest rates for a corporate FD is higher than a bank FD with flexible tenure options. The downside to this form of investment is that these are not as secure as bank fixed deposits and investors research should before choosing this. A lot is dependent on the business model of the company.
Fixed Maturity Plans
Fixed maturity plans invest in debts and securities and related debt instruments, but these invest in only those instruments with coinciding maturities. For example, if a fixed maturity plan has a maturity time of 1 year, it will invest in bonds, securities, and other similar options having a maturity period of less than a year.
The flexibility of early withdrawal is not present, and the fund can be accessed only at the time of maturity. It is therefore suggested to be careful while blocking the funds for a period you will be comfortable with.
Fixed maturity plans are an excellent alternative to a fixed deposit, but they are not very liquid. But on the bright side, the risks of investing in these are very low and assure a comparatively higher return.
In India, these are possibly the best-known alternative to fixed deposits even though the returns generated by government bonds are only slightly higher than a fixed deposit. The lock-in time for these investment instruments is longer, but they offer the investor the option of diversifying their portfolio.