Top 5 safe investment options in India

Partner Content Jan 08, 2019

India has been a nation of savers and we prefer to squirrel away our money in our pillows, mattresses, and jars. We are also risk averse and like to invest in avenues that give us guaranteed and safe returns, even if they are low and barely manage to beat inflation. In this post, we share the top 5 safe investment options in India.

Thankfully in our country, there are ample investment avenues where investors can put in their money and can get decent returns on it, without having to run the risk of seeing their money vanish or being heavily subject to market caprices. Here we give you the top 5 safe investment options where you can get guaranteed returns on your investments and these are about the safest options that you can get.

  1. Liquid funds

Liquid funds, where mutual funds invest in liquid assets such as call money market, short-term treasury bills, and commercial papers are also relatively safe. Their safety stems from the fact that these securities in which they invest have a fixed interest on them (called coupon) and the net asset values of the mutual funds get their price from the underlying. These are ideal for short-term cash management - money which you require in the short term but which you would not want to keep idle.

Invezta allows one to easily invest in liquid funds and redeem these instantly upon liquidity requirements. This makes it a perfect alternative to savings account giving nearly double the returns.

  1. Public Provident Fund

The Public Provident Fund is a government-administered scheme and is one of the safest investment options for creating a retirement corpus. It is safe because it has a fixed rate of interest that is set by the government at the beginning of every quarter and carries a sovereign guarantee..

The features of the scheme make it an ideal long-term investment option and illustrate the principle of the power of compounding. The initial tenure of the scheme is for fifteen years that can be extended by another five years if you do not want to redeem it at the end of that period.

You can invest anything between Rs. 500 to 150,000 in this scheme every year. The amount that you invest is eligible for deduction from your taxable income. The interest that you earn on your investment is tax exempt and so is the maturity amount at the end of the tenure of the scheme. That makes it an ideal tax saving instrument on all counts.

One attractive facet of the scheme is that it is one of the few investments that cannot be attached by the government, the courts or any enforcement agency even if the holder is declared bankrupt and insolvent.

The government used to set the interest rate on the PPF every year, but recently it has become floating and is linked to the economy rate and so is reset every quarter. However, the rates are still attractive and much above the benchmark rate of the Reserve Bank of India.

An investor can also make partial withdrawals from the scheme from the seventh year onwards, while there is a facility of taking loans for as low a rate as 2% interest.

  1. Fixed Deposits/Recurring Deposits

Companies and banks raise funds from the public by asking people to deposit money with them and in lieu of that, the institutions pay them interest. This interest rate is fixed for the entire tenure of the deposit. These are fixed deposits, a popular investment avenue with Indians.

If fixed deposits are issued by public sector banks (those that are owned by the government) or by companies that are state-owned then they are as good as government guaranteed. This makes them low risk. A fixed deposit can be of any tenure ranging from three months to about five years. Investing in a five-year FD is eligible for tax deduction in some cases.

Fixed deposits are especially good for regular income because the interest on the amount invested is paid out quarterly, half-yearly and annually. So if you as an investor have a lumpsum corpus, this money can be invested in a fixed deposit, which will give you periodic cash flows.

The charm of investing in an FD for a long period of time is that due to the fixed interest rate feature, the investor gets the returns at the promised rates even if the economy rates go down during that period.

It makes sense to invest in fixed deposits to meet medium term and short term goals such as buying a car, a mobile phone, white goods etc.

If you do not have a lump sum amount you can opt for recurring deposits. These are the same as fixed deposits, with a fixed interest and for a specific tenure, but you can make periodic investments in the scheme, adding to the deposits.

A slight variation on FDs are debentures, which again are issued by corporates and finance companies. They are similar to FDs but of longer tenure, say up to 10 years, and they can pay higher interest too because they can be unsecured (no asset backing them). In that sense, they are slightly more risky, because the company’s business may flounder and it may be unable to repay the investor.

  1. National Savings Certificate

The five-year National Savings Certificate is another post office small savings scheme, which gives about 8% interest compounded annually and the entire amount with accumulated interest is paid on maturity. Again as in the case of the PPF, the amount invested is tax deductible and the interest on it is tax-free.

Being of a shorter duration than the PPF, the investor’s funds are locked up for a shorter time and it is ideal for medium-term goals such as accumulating a corpus for a down payment on a house etc.

  1. National Pension System

The National Pension System, originally introduced for employees of the Central Government, is now available to all on a voluntary basis. You can create your own retirement corpus by subscribing to the NPS.

An NPS can be opened offline or online, through post offices, banks, and the NPS site. Contribution to the scheme up to 10% of an employee’s salary is tax eligible for tax deduction and so is the employer’s contribution. There is an additional amount of Rs 50,000 which is eligible for tax benefits.

Anyone over the age of 18 can open an NPS account. There are two types of accounts under NPS.

  1. The Tier I account is compulsory and is the retirement account. Money from this account cannot be withdrawn until retirement. Also, an investor needs to make a minimum contribution of Rs 6000 every year in the account or else the account is liable to be frozen.
  2. The Tier II account is voluntary and the subscriber can make full withdrawals from this account.

The money invested in the NPS is managed by about eight pension fund managers and they are all registered with the pension fund regulator, PFRDA. An investor can opt for the Active Choice where the investor can decide the asset allocation, or the Auto choice, where there is automatic or a default asset allocation in sync with the subscriber’s age.

While the returns on the NPS are market-linked, so far the various schemes under NPS have given average returns of around 10%, ( since inception which is fairly decent.

At maturity, 40% of the amount will be used to buy an annuity, and the remaining 60% can be withdrawn. Under recent amendments made to the scheme withdraws have been made tax-free.

Caution: All investments are subject to risk!

One word of caution though - there is nothing called zero-risk. Everything carries a certain amount of risk. Institutions, even those that are owned by the government, can fail, companies can fall into trouble and they can default. That is something that has to be factored in while we make any investment.

When we talk about safe investments, we are talking about those that carry lower risk compared to others that carry more risk. It is all about varying degrees of risk.


Disclaimer- The views and opinions expressed in this article are those of the author's and do not necessarily reflect the official policy or position of M3 India.

The article has been contributed by Invezta, a Robo advisory platform that provides a do-it-yourself facility for transacting at minimum cost, keeping track of investment portfolios and giving advice that is easily understood.

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