Generally, in a bull run, people invest all their savings in the stock market. Once the market takes a downward turn, instead of staying invested, they tend to panic and look for fixed return investments.
So, if you identify with the above behaviour or find the stock market way too volatile for your liking, here's a sample of what's on offer.
The good ol' fixed deposit
Bank deposits
Your parents and grandparents swore by bank deposits. Unfortunately, in the era of interest rates dipping, this avenue has lost some of its lustre. Now, with interest rates rising slightly, maybe you could consider it.
What is great about this is the tenure of investment. It could be as low as 15 days and go as high as 10 years. The interest given is determined by the tenure. Most often, the longer the tenure, higher the rate of return.
Besides the return, you also have to look at what the minimum amount is.
This is what a visit to two banks -- HDFC Bank and State Bank of India -- revealed
HDFC Bank had a higher minimum amount of Rs 5,000 while SBI put it at just Rs 1,000.
|
HDFC Bank |
|
SBI |
|
5.5% |
15 -- 45 days |
- |
|
5.5% |
46 -- 90 days |
5% |
|
6% (to 180 days) |
91 days -- 179 days |
5% |
|
6.5% |
6 months -- 1 year |
6% |
|
7% |
1 year -- 2 years |
6.25% |
|
7% |
2 years -- 3 years |
6.5% |
|
7.25% |
3 years -- 5 years |
6.5% |
|
7.25% |
Above 5 years |
7% |
Post office deposits
Fixed deposits are not solely available with the bank. You can even get them in a post office. Here, the minimum amount is just Rs 200. Take a look at the rate of interest offered.
|
1 year |
6.25% |
|
2 years |
6.5% |
|
3 years |
7.25% |
|
5 years |
7.5% |
Company deposits
Companies too offer fixed deposits.
Though the interest rates offered are a little higher than banks and the post office, they are more risky.
Rating agencies like CARE, CRISIL and ICRA rate these deposits. An AAA rating signifies highest safety (with regard to getting your interest and principal amount return), and D or FD means the company could default (not pay the interest and not return the money). The issuers have to state their rating when they come out with the deposit.
The tenure and minimum investment will vary from company to company. Normally, the minimum investment is Rs 5,000 and the deposits could extend from six months to five years.
For instance, HDFC offers such deposits. For a minimum amount of Rs 5,000, you can get 7.5% upto four years and for five to seven years, it is 7.75%. They have been given a AAA rating by CRISIL and ICRA.
Company fixed deposit forms are available through various broking agencies or directly with the companies. Ask your mutual fund agent if they also have forms for company deposits.
Recurring Deposits
In a fixed deposit, you put in a fixed amount at one go. In a recurring deposit, you have to keep putting in fixed amounts every month.
Both banks and company fixed deposits offer this. This is great if you do not have money to invest at one go and also if you want to get disciplined in your investments.
It is a good way to encourage savings on a regular basis.
If you manage to save just small amounts every month, this is an excellent option.
If your deposit is with the bank, you can ask them to directly debit a fixed amount from your savings account every month.
However, not all banks offer this option. Those that do stick to a long tenure of around five years. Each bank will offer their own rate of interest.
The post office offers this for five years at the rate of 7.5%. You can ask them whether they will want post-dated cheques. Else, you can keep the money in a savings account with the post office and they will directly debit the money from there.
Kisan Vikas Patra
This is a one-time investment. It is offered by the post office for eight years and seven months, during which time the money doubles. This will indicate an interest rate of around 8%.
The certificates are available in denominations of Rs 100, Rs 500, Rs 1,000, Rs 10,000 and Rs 50,000.
RBI Bonds
RBI bonds are similar in that they offer 8% on your investment. You money will be locked in for six years.
You can get the forms from the Reserve Bank of India branches, State Bank of India branches and other banks.
The minimum amount that can be invested is Rs 1,000.
Interest is payable half yearly or given at one go at the end of the tenure. RBI Bonds do not offer any tax benefit.
National Savings Certificate
NSC is also available at the post office. The term of the certificate is six years and the rate of interest is 8%. You need to invest a minimum amount of Rs 100.
NSC offers the investor a tax benefit as well. Investments in NSC are liable for exemption under the Rs 1,00,000 limit of Section 80C. However, the interest generated is taxable.
Public Provident Fund
Just like NSC, investments in PPF are liable for exemption under the Rs 1,00,000 limit of Section 80C. Interest is tax free.
PPF is by far the most popular of tax-saving schemes. Only one account is permissible per person. The minimum amount needed to maintain the account is Rs 500 per year and the maximum is Rs 70,000.
The duration of the account is 15 years, but can be extended for five years at a time.
The rate of interest is 8%.
You can open the account at SBI, other nationalised banks or head post offices.
Read PPF vs NSC.
Monthly Income Scheme
This too is available at the post office. You invest a fixed amount of money and you get a return on it every month.
This is a good option if you are a freelancer and looking for some steady income.
The term is six years and the interest is 8% per annum.
Vinay Joshi is an investment banker working in the real estate sector.