If you are a risk averse investor, who chooses to park all your money in fixed deposits, than you must invest in such a way, so as to ensure you beat inflation and maximize your returns. Here are a few instruments that you can invest apart from the traditional bank fixed deposits for higher returns.
Company fixed deposits
Bank fixed deposits today offer you a maximum interest rate of 7.5 per cent. But, if you look at a company fixed deposit, you can surely maximize your returns. If you think company fixed deposits are not as safe as bank fixed deposits, think again.
These deposits are guaranteed by the govt of Kerala which makes them very secure. Some other company fixed deposits like Mahindra Finance, Tamil Nadu Power Finance also offer interest rates that are way higher than bank deposits and are extremely secure.
Look at listed non convertible debentures
Non convertible debentures (NCD) are fixed interest bearing instruments that are listed on the stock exchanges. These are generally issued by corporates with a fixed tenure. You could buy a listed NCD of India Infoline or Shriram Transport and your yield could be as high as 12 per cent. This is way above the returns from bank fixed deposits. Read on some of the high yielding NCDs here
Look at tax free bonds
If you are paying taxes and are in the 20 per cent or 30 per cent tax bracket, you must invest in tax free bonds. You can buy these tax free bonds that are listed on the stock exchanges. You will get a tax free return of around 8 per cent, if you buy these bonds at a good rate. Now, if you invest in a bank fixed deposit you pay tax on the interest income, while here the interest income is tax free.
So, if a bank deposit fetches an interest rate of 7.5 per cent your post tax yield would be only 6.75 per cent and 6 per cent, if you are in the 20 and 30 per cent tax bracket. Thus, your post tax yields on bank fixed deposits are very low when compared to tax free bonds. Almost all of the listed tax free bonds are from government companies like HUDCO, Indian Railways Finance, National highway Authority of India etc., which makes them very safe and secure. Read more on tax free bonds here