One of the most popular investment options in India is a Fixed Deposit (FD). A probable reason is its low risk as it’s not market-linked. Rather, it earns an assured interest rate from the bank. People find investment planning a lot easier with an FD.
Only the wisest know that the returns from FDs can never beat inflation. It is this phenomenon that depreciates the value of money over time. In the end, you may witness visible growth in your invested sum, but it will lose its value if the inflation rate surpasses the FD interest.
So, now the question arises: if FD is not that favourable, what are its alternatives? Let’s discuss investments better than FDs, which promise scalable means of measurement and proceed to uncover opportunities of great potential returns with them.
The benefits of an investment option are not quantifiable, as the outcomes vary depending on the attributes. Today, let’s consider returns as the scale of measurement and proceed to find out which investment opportunities outperform FD.
If there is any investment that promises the greatest growth potential, it’s none other than the stock market. Nifty itself has grown more than 65% over the past few years. People who had then invested are enjoying a lump sum corpus now. However, stock investments are quite risky due to their high volatility. Also, a deeper understanding of stock markets is necessary to achieve the desired investment goals. We agree that the scheme suffers from the stated drawbacks, but let’s not forget the bigger picture – returns!
Most investors aim to create a retirement fund with FDs. However, now that you know why FDs are not favourable, let us recommend NPS in place of that option. Backed by the Government, the scheme allows for frequent investments in small amounts to help build a large sum for retirement planning.
Since it’s market-linked, investors have the freedom to invest in a portfolio of their choice. This is exactly why it fares pretty well in terms of return when compared to FD. However, the lock-in period is 60 years of age, before which an individual can never withdraw the fund under normal circumstances.
Issued by the Government and corporations, bond investments are debt instruments tasked with raising money. It’s ideal for conservative investors who are risk averse. The concept of bonds is simple. It acts just like a loan to an entity, whereby the amount invested is lent to a company or Government for a fixed period, and in return, they pay a fixed interest until the bond matures.
Here, interest rates are pretty high when compared to FDs, and the face value of the sum invested is returned once the bond matures. Another advantage of investing in bonds is higher liquidity. They can be traded in the secondary market to get back the invested sum, unlike FDs, which charge a penalty when somebody tries to withdraw money during the lock-in period.
Mutual funds are for people with little confidence in picking stocks and managing portfolios. Being professionally managed by seasoned fund managers, they are less risky than stock markets. Plus, they allow individuals to invest in not just stocks, but commodities, debts and currencies. As for returns, equities have a higher return potential than debt. And if you compare the latter to FDs, you will be surprised to find that debts have higher returns. So, if you are willing to take risks just for the sake of promising returns, a mutual fund is ideal for you.
When FD schemes are introduced by Non-Banking Financial Companies (NBFCs) and other financial institutions, they are called “Corporate Fixed Deposits”. The interest forwarded by them is higher and often beats inflation. However, they are riskier as they do not originate from banks and are not insured by DICGC. Therefore, always invest in corporate fixed deposits from trusted institutions.
While it’s clear why people tend to gravitate towards safe options like fixed deposits from reputable banks, the returns generated almost always fall short of the inflation rate. This negatively influences the real returns on investments. So, if you are up for prudent decisions and ready to tolerate risks, contemplate the aforementioned alternatives and earn good returns from diversifying your portfolio.
