What are safe investments?
Safe investments are one in which the element of risk is almost zero. Safe investments are good for those who are retired and would not like to take risk. There are many individuals who also do not have the ability to take risk, which is why they opt for some of the best safe investments in India..
Returns and risk in safe investments
Many individuals believe that if the investments are safe, there is likely to be very little returns that could come. This is a myth. There are many investments, which are safe and at the same time, give you good returns. These returns can be with or withour taxes. We believe every individual needs to take a calculated risk.
List of safe investments in India
We have given a list of safe investments in India here below. We wish to state some of these have a higher lock-in periods for example the PPF, while others are taxable. So, you have to take a call on which type of safe investments that you would like to invest. Go for the ones with the highest interest and a more long trem perspective.
8 Best safe investment options in India
Deutsche Bank FDs
These FDs are safe and also offer a very high interest rate. The FD offers an interest rate of 7.75 per cent over a 5 year tenure.
This is not bad at all considering a falling interest rate regime that we are currently living in. Senior citizens are not entitled to an extra rate and can also avail an interest rate of 7.75 per cent only.
For tenures of less than 5 years, the interest rate ranges at 6.90 per cent. This is not the best. It is also important to remember that interest rates on banks is fully taxable in the hands of the investor.
One can even look at some of the safe small finance banks, where you can get interest rates that are as high as 9.50 per cent. These too are safe and sound instruments to invest in. They were recently a license by the Reserve Bank of India.
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. Presently, the Post Office Monthly Income Plan gives you an interest rate of 7.6 per cent, which is not bad at all. This is one of the best and the safest investment option in India, since it is guaranteed by the government of India.
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 7.9 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. This is one of the best safe saving instruments in India since it allows you to build a corpus as well for retirement. The biggest hazard with the PPF right now is that there is a lock-in period and one cannot withdraw the funds.
Suryoday Small Finance Bank
This is another investment that is safe and offers good rates of interest.
This small finance bank offers an interest rate of 9 per cent on its 12 to 24 months deposit. This interest rate is pretty decent given that many banks are currently offering an interest rate of just 6 to 7 per cent.
For 12-24 months senior citizens can earn an interest rate of 9.25 per cent. If you are opting for 24 to 36 months you get an interest rate of 8.75 per cent, while senior citizens are entitled to an interest rate of 9 per cent.
Remember, the yields can go way higher on account of the benefits of quarterly compounding, which can be as high as 9.58 per cent.
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 8.4 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. There is a TDS that would be applicable on these deposits. The one problem right now for the Senior Citizens Scheme is that the government will keep monitoring and changing the interest rates at regular intervals.
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. The rate of interest on the scheme is currently 8.4 per cent per annum. Again, like most other post office schemes the interest rate on this scheme varies and changes very frequently.
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. The interest rates vary from 6 to 7 per cent and have fallen in the recent past.
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. The problem right now is that while post office monthly income schemes are safe, the interest rates on them have fallen dramatically, which makes them slightly less in terms of yield.
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.