Conservative investors always looks for safety of an investment instrument along with capital appreciation. Investing in safe instruments will not erode your capital, making it safe when compared to other risky investments.
Investing in risky instruments like equities, equities mutual fund may not be safe but they offer higher returns and can beat inflation.
Here are few things which we need to consider before choosing the product;
Tenure of investment
Before investing one should consider tenure of the investment as it plays a vital role. Returns on the investment depend on the tenure of the product. Investing in products such as equities for short duration can be highly risky due to market volatility.
Liquidity is the ability of the investment product to convert into cash. An investor looking for a longer period, liquidity may not be a significant factor, whereas if the investment horizon is a short period it does matter.
Remember, that taxation is a very important part of investing. If you are in the 30 per cent tax bracket, your returns fall by 30 per cent, if the instruments are taxable, unlike the PPF where the interest income is not taxable. So, you have to keep in mind tax liability as well.
8 Best safe investment options in India
Yes Bank Savings Account
The Yes Bank Savings Account is not a bad bet. For example, bank deposits are now fetching you an interest rate of 7 per cent, whereas the fixed deposit of Yes Bank is giving you an interest rate of 6 per cent. Now, there is also a catch here. The fixed deposits are liable to tax, while savings bank interest is tax free up to a sum of Rs 10,000. So, while the interest is marginally lower, the service and other aspects make Yes Bank savings account an ideal safe long term investment. the banks fundamentals are also strong and hence making it one of the best long term investments. Go for it, if you have the money to spare.
1) Bank Fixed Deposits
Bank fixed deposits are the most preferred financial instruments with interest ranging from 6 to 7 per cent depending on the bank you invest in. Most of the banks recently have cut interest rates, making this a very dull investment proposition.
It is important to remember that bank deposits are fully taxed in the hands of the investor. So, if you are in the highest tax bracket your returns are expected to be very dismal. So, though these investments can be considered as safe, they are very low in returns. So, if you have other options look for those.
2) Recurring Deposit
Recurring deposits are another safe way to invest and generate regular monthly income. This is not very different from the bank deposits, the only difference being that here we invest small amounts every month in a very systematic way. The amounts like fixed deposits are very much taxable, which does not make them a very attractive proposition You can invest in them if you want to save for regular purposes, but for tax purposes this is not a good investment.
4) Monthly Income Scheme
Post office monthly income scheme is for individuals who are less risk averse and looking for safe investment option with decent returns. This is again a scheme that has no benefits. It gives you a low interest rate and unlike the Public Provident Fund is fully taxable. So, your actual returns from the scheme turns out to be very low. If you are looking to invest in the scheme, you could look at various other options.
3) Public Provident Fund
Public Provident Fund (PPF) is one of the favorite instrument of a salaried individual.
PPF offers many advantages. The first is that the interest income is not taxable. The second is that there is tax benefits under Sec 80C of the Income Tax Act. It is a good way to save for your retirement. The interest rate on this has now dropped to 8.1 per cent from nearly 9 per cent a few years ago. There is a high possibility that the rates of interest could be even slashed further. However, if you are a long term investor, there is nothing to worry. The government has only recently cut the interest rate on the Public Provident Fund.
5) Senior Citizen Savings Scheme
The Indian government has taken several measures in various sectors for the benefits of the Senior Citizens.
The Senior Citizens Savings Scheme is one such effort.
The interest rate is decided by the government and will be set every quarter. The interest rates have now fallen to 8.7 per cent, from nearly 10 per cent.
The scheme can be opened in post office as well as banks such as ICICI, SBI etc. As suggested by the name, it is important to note that this investment is only meant for senior citizens in the country. This is overall a good scheme, but one would have expected that the returns would not be taxable, given the fact that these are meant for senior citizens. However, there are no tax benefits here.
Sukanya Samriddhi Account
Sukanya Samriddhi Account is only for girl child to encourage education.
This account can be opened at post offices and commercial banks. There are several advantages of placing money in the Sukanya Samriddhi Account. The first and the foremost is that you get tax benefits under Sec 80C of the Income Tax Act. The second is that you build a corpus for the girl child. If you are a long term investor, this is a great bet.
The only worry is that the scheme has a very long term holding tenure, which is very high.
Debt Mutual Funds
Debt mutual funds have the ability to give you superior returns than bank deposits, as they tend to park some money into equities.
Debt mutual funds are safe as they invest most of the money in debt instruments such as corporate bonds, government securities, fixed deposits of banks, money market instruments etc.
These schemes are generally considered as debt free and can be placed, if one has a long as well short term objective in mind.
Tax Saving Fixed deposits
Investing in tax saving fixed deposits will provide tax benefits under SEC 80C of the Income Tax Act.
Invested amount you can deduct the sum from your taxable income, thus it will reduce your tax liability.
However, TDS is applicable on the interest income which exceeds Rs 10,000 in a financial year.
Make sure you update the PAN in your account or else 20 per cent TDS is applicable instead of 10 per cent.
Select company deposits
Company deposits are also safe, if you invest in the AAA rated deposits. For example, some deposits like Bajaj Finance and Mahindra Finance are AAA rated and offer good scope for earning higher interest rates then bank deposits. Most of these can offer you up to 1 per cent higher interest rate. However, we suggest that these are good safe long term investments, there is an element of risk as well, as the nature of these deposits make them unsafe.
You can also consider what we call fixed maturity plans, which generally have a tenure of below 1 year. These are mutual fund units that are considered safe, as the amount is invested in safe AAA rated instruments. If you are looking for safe and best long term investments, this should not be a bad idea. Look to invest for say at least a period of 1 year. It is only then that you could see some benefits in terms of profits. These are short term kind of instruments that can be considered as relatively safe. So, go for it. Remember, that these are not tax free investments and are hence fully taxable in the hands of the investor. So, to that extent your returns are greatly reduced.
Post office recurring deposits
If you are looking at a safe investment option, you should also consider the post office recurring deposit. The interest rates have dropped recently, but, this is a great option for investors looking at building a corpus for the long term. The one disadvantage that is worth mentioning is that these deposits are very much taxable in the hands of the investors. However, there are relatively safe, if you have a long term perspective in mind. We suggest that you invest for at least 5 years, so as to lock interest rates at higher levels. this is a great option for the salaried class.
Schemes of debt mutual funds
One can also consider investment in select safe debt mutual fund schemes. These would offer you good investment opportunities for the more medium to long term perspective. debt mutual fund park their money in safe government bonds, debentures, commercial paper etc., which naturally makes them very safe. However, there can always be an element of risk as well, which you should not ignore altogether. In the past in one particular debt fund, there has been a default risk for a corporate instrument. So, it is not always that you get the best possible result from a debt mutual fund though they are considered as safe.
Post office monthly income scheme
If you are a retired individual, you should also be considering the post office monthly income scheme, as an investment option. Since these are backed by the government, they are safe. In fact, we would not even say they are safe, but, they are the safest investment. However, there are some penalties that are applicable on these deposits if you withdraw them early. For example, there is a 2 per cent charge that would be applicable on the same. However, if you are a retired individual it makes sense to invest in these schemes. So, go for the same, as they are fairly safe.
MIPS of mutual funds
These are also relatively safe investments from the debt mutual funds. They are part of debt mutual funds, which largely invest their money in safe government schemes or high quality debt of mutual funds. Hence, they can be largely considered as safe. If you are a long term investor, then you should consider MIPS. In the past there have been no instances of default or any other major problems in these schemes. Sometimes it is a blend of both equity and debt that these investors invest in. So, they churn out higher returns by mixing debt with equity. Some of these MIPs in the last one year have returned even 10 per cent.