You recently received a bonus at work and instead of leaving it unused in your savings account, you have chosen to invest your funds in a fixed deposit. These investment instruments are one of the safest options and their returns (interest rates) do not fluctuate based on market news.

Apart from fixed deposits, there are various other investment avenues in India that provide security. However, FDs remain a popular choice due to their guaranteed returns, fixed interest rates and flexibility in choosing the duration.

What are fixed deposits in India?

A Fixed deposit is a financial instrument offered by banks and financial institutions. It allows you to deposit a lump sum for a specific period of time at a specific interest rate. This means you know exactly how much interest you will earn, giving you a feeling of security. Generally, the longer you invest your money, the higher the interest rate you can receive.

For example, if you park ₹100,000 in an FD for five years at an interest rate of 6%, you will earn ₹30,000 interest over that period, making a total of ₹130,000 on maturity. The simplicity of FDs makes them a popular choice among conservative investors looking for guaranteed returns.

FD interest rates generally vary between 5% and 8% per annum, depending on the bank and the tenure of the deposit.

Fixed Deposit Alternatives in India

Here are four investment options that can be an alternative to FD.

Public Provident Fund (PPF)

With an annual return of 7.1%, the returns on PPFs can be slightly better than some FDs. PPF rates are reviewed quarterly and are subject to change.

However, unlike FDs, PPF investment is not liquid and comes with a lock-in period of 15 years. Premature withdrawals are permitted from the 6th year onwards, but only in specific cases.

Sovereign Gold Bond (SGB)

SGB ​​offers an annual interest rate of just 2.50%, payable semi-annually. However, the main feature of this investment is that in addition to earning interest, bond returns are linked to the value of physical gold. As the value of gold increases, so does the overall return on investment.

Like PPFs, SGBs are also not a liquid investment. They have a lock-in period of eight years, with early withdrawal possible after five years.

National Savings Certificate (NSC)

The National Savings Certificate (NSC) is a government-guaranteed fixed income instrument that you can invest in through the Post Office.

With a return of 7.7%, the returns on NSCs are better than those on fixed deposits (FDs). However, the downside is the five-year lock-in period.

Loan fund

Debt funds are mutual funds whose portfolio includes treasury bills, corporate bonds, government securities and money market instruments. Unlike FDs, their returns are not guaranteed.

Features that make fixed deposit in India a popular choice

• Guaranteed returns
• Flexible mandate
• More liquid
• Easy to open and manage
• Loan against FD
• Tax savings

Conclusion

Fixed deposits in India are a reliable investment option for people looking for security and predictable returns. However, when evaluating your choices, it is essential to consider not only the interest rate, but also the tax benefits and liquidity aspects. To get better returns, consider spreading your capital across multiple investment options or FD tenors.