Earn good returns with these investment options

Fixed deposits provide safety of capital, instant liquidity, and assured returns. This is why we Indians entrust our liquidity needs to fixed deposits. Interest rates have lowered fractionally in recent months, in line with the several cuts to the repo rate by the Reserve Bank of India. It's likely that as banks start linking their interest rates to external benchmarks from October 1, the interest rates on fixed deposits will also begin to lower. Having fixed deposits is a necessity for most families. So is there a way to continue earning good returns other conservative investment options? Here are some suggestions.

Consider liquid mutual funds for short-term

Liquid funds are considered the safest variety of mutual funds. They're a variety of debt funds that invest in low-duration investments. This makes them far less volatile than debt funds with longer duration investments which can react sharply to interest rate movements. Their returns are similar to, or sometimes marginally higher than, fixed deposits. There are no exit loads; however, you'll pay a small expense ratio. The category returns for liquid funds are around 6.72% in the last one year, while the 5-year returns are 7.30% per annum. Go with a liquid fund with a good track record and performance rating.

Private banks & small banks pay more

The FD interest rates offered by public sector banks are slightly lower than those offered by private banks. For public banks, the rates on all tenures are currently 5.5-7%, whereas, for private banks, the rates range between 6.5-7.85%. However, a handful of small banks are also offering rates between 7.5-9%. If you need higher pay-outs, you may consider these options. But remember to do your due diligence on small banks. Bigger banks, even while they offer lower rates, are considered more stable.

For moderate durations, make corporate deposits

If you're looking to invest for assured returns for the medium term (2-3 years or longer), corporate deposits are another attractive option. Some of the best offers currently provide interest ranging from 8.10% to 9.50% per annum. With any corporate deposit, pay attention to the company's credit rating. Since there've been a spate of high-profile defaults lately, always pick deposits with the highest credit ratings (AAA, FAAA or similar), even if it needs sacrificing a little bit in terms of interest earnings.

For 5 years, consider NSC

You could purchase the National Savings Certificate, a small savings scheme by the government, which currently provides 7.9% per annum apart from tax deductions under Section 80C. Also, your returns each year are rolled back into the investment, providing you additional deductions under 80C. The pay-out happens in five years when the returns are fully taxable.

Going longer? Look At 7.75% bond

The government of India 7.75% Savings (Taxable) Bonds, 2018, is a seven-year investment which offers, as the name suggests, an interest rate of 7.75% per annum. The returns, unlike some small savings schemes, are fully taxable. The minimum investment is Rs. 1000, and can be availed via trading platforms and eligible banks.

For long-term, what better option than PPF?

The humble Public Provident Fund, which is a 15-year investment scheme backed by the government, is one of the best debt investment options. Currently, it offers annual returns of 7.9% which are completely tax-free. However, PPF is best suited for long-term investment and resultantly lacks liquidity. You can only make partial withdrawals after six years. If you don't have high liquidity needs, consider the PPF, or any other attractive small savings scheme you may be eligible for. For example, if you have a girl child, the Sukanya Samriddhi Scheme is an attractive option and returns 8.4% per annum. Those above 60 can avail the Senior Citizens Savings Scheme, which returns 8.6%. Small savings returns are assured, so eligible investors should look to exploit them.

The writer is CEO, BankBazaar.com