Individuals who are risk averse always look to invest in safe instruments as the returns are fixed and will get back the principal on time.
Other than bank fixed deposits there are few other risk free and safe investment options for risk averse individuals.
However, in recent times, there has been fall in interest rates in bank deposits, so one can consider these options for better returns.
1) Tax free bonds
Tax free bonds when issued come with the coupon rate of between 7-9.05 per cent and the interest earned on the bond is tax free. For those who missed these tax free opportunities, can still buy the same from the secondary markets.
One should always remember that bond prices are inversely proportional to interest rates.
As most of the bonds are backed by government institutions and are hence very safe to buy.
2) Debt mutual Funds
Debt mutual funds can give better returns then bank deposits, as the amount will be parked into different government securities and safe corporate bonds.
However, one should consider the risk with respect to interest rate fluctuation as it can be higher.
Also, considering the tax aspect, debt mutual funds are better as interest earned on a bank deposit is added to your total income and taxed accordingly. while, in debt funds you can opt for dividends distribution which is tax free in the hands of the investor.
3) Monthly Income Scheme
Monthly Income Plan (MIP) is debt-oriented mutual fund scheme with income generation. Major part of investment here are made in debt funds which provide returns and stability and some amount in equity related instruments which will help in generating higher returns.
It generally has 75-80 per cent of its corpus in debt and rest in equity and cash.
4) Corporate NCD
One can look for investment in corporate bonds which are high rated which makes there investment comparatively safe.
The payment of interest and maturity on these bonds will be backed by the company from the revenue stream of the company.
5) PPF, SSC and NSC
These instruments are safe and can be considered if one is looking for long term investments. The main issue with these investment option is liquidity, as it is not suggested to liquidate before maturity.
Before investing one needs to look at various factors such as tenure, taxation part and liquidity. These mentioned instruments can be a part of portfolio to mitigate risk from other riskier investment made.