Bank interest rates have fallen like never before. Large banks in the country have dropped their highest interest rates to 5.5 per cent on regular deposits. At such a time it is important to look at other avenues when bank interest rates are low. Here are 4 options, which you can consider.
1. Stocks of dividend paying companies
Some stocks are available at dividend yields in excess of 10 %. Examples include the government owned power finance companies namely REC and Power Finance Corporation. In fact, the dividend yield of REC at the moment is 11.11 per cent, while that of PFC is 11.13 per cent. Now, there are many such dividend paying companies like Coal India too that offer very high dividend yields.
While the dividend yields on PFC and REC is based on last year's dividend, it's highly possible that both the companies would declare the same dividend as last year taking the yields higher.
Until last year dividends were tax free in the hands of investors, however, beginning from this financial year, they are very much taxable.
2. Post office small savings schemes
Post office small saving schemes offer a much higher interest rates than bank deposits. For example, if banks currently offer a maximum of 5.5 per cent interest, post office small savings scheme like National Savings Certificates offer you an interest rate of 6.8 per cent. The Public Provident Fund offers you an interest rate of 7.1 per cent.
Apart from this on the Public Provident Fund one gets a tax free interest income and the amount invested also qualifies for tax benefits under Sec80c of the Income Tax Act. The Kissan Vikas Patra also offers a decent interest rate of 6.9 per cent.
Overall, the interest rates on some of the small savings schemes are very good and come with tax benefits on select instruments.
3. Listed non convertible debentures
Non Convertible Debentures (NCDs) are listed on the stock exchanges and they offer you a coupon or interest rate. The interest rates on the NCDs is payable every quarter, every year or semi-annually.
So, you can buy these instruments from the stock exchanges where they are traded. They can be bought just as you buy shares. On maturity these NCDs are redeemed and the company pays you the full value of the face value of the NCDs. The rate of returns would depend on the value you buy the NCDs which are traded on the exchanges. Lower the value, higher would be the yield and so on.
Let us give an example: If you buy the listed NCDs of a company say at Rs 980, against the NCD value of Rs 1,000, your returns would go higher.
About the author
Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, debt, commodities, mutual funds and tax planning.