The lending activities of banks have reduced over the past few months and so have the lending rates. After making cuts in lending interest rates, many banks now may hit the fixed deposit interest rates. A few leading banks have already dropped the interest rates of their fixed deposits. These all are directly linked to the lowering repo rate. In the previous year only, RBI has trimmed the repo rate five times.
The interest rates of FD going south is not good news for the investors. With the dropping interest rates of fixed deposits, investors will lean towards its alternatives. Here are a few investment instruments where you can invest instead of fixed deposits.
Investment options if FD rates drop
With the following investment tools, you will get a regular investment and fetch higher interest than fixed deposits.
Public Provident Fund
Offered by the Government of India, Public Provident Fund encourages long term investment. As announced on July 1, 2020, the current rate of interest offered under the scheme is 7.10%. PPF has a lock-in period of 15 years and can be expanded in a batch of 5 years.
The total corpus including the principal amount and the accumulated interest is tax-free. Investors can enjoy tax exemption up to Rs. 1.5 lakhs in a financial year. The sovereign back up makes the Public Provident Fund a complete secure investment option.
Post Office Time Deposits
Post Office Time Deposit offered by the Indian Post Office is among the safest investment options due to Government backing. The fixed deposit interest rates under this scheme range from 6.9% to 7.7%. Investors can choose a tenure of 1, 2, 3 or 5 years. The minimum deposit amount is Rs. 200. However, there is no upper limit. The scheme is eligible for tax benefits under section 80C of the Indian Income Tax Act.
The Post Office Time Deposits is best suited for those living in rural areas and with limited access to banks and other non-banking financial companies.
Post Office Monthly Income Scheme
The name is due to the regular payouts this scheme offers. Much like fixed deposits, investors make deposits in a lump sum under this scheme and get regular payouts. The interest rates offered by the scheme is 7.6%. The scheme fetches higher returns as the interest is compounded yearly.
Retired persons and individuals who want a regular source of income should opt for this investment tool.
Sukanya Samridhi Scheme
The Indian Government offers the Sukanya Samridhi Scheme under ‘Beti Bachao, Beti Padhao Yojana’. You can open this scheme in the name of your girl child aged below 10 years. The tenure is of 21 years or until the child reaches the age of 18 years. Since this scheme operates under a Government initiative, it is backed by a sovereign guarantee.
The scheme offers an interest rate of 7.10% and enjoys tax benefits under section 80C of the Income Tax Act.
Senior Citizen Saving Scheme
As stated by the name, this one caters to the senior citizens of the country. Individuals above 60 years can apply for this scheme. This scheme offers a quarterly payout and hence, can be a regular source of income.
This scheme, backed by sovereign assurance, offers an interest rate of 8.60%. The tenure is generally 5 years and can be stretched to another 3 years. The minimum and maximum investment amounts are Rs. 1,000 and Rs. 15 lakh respectively.
RBI Savings Bonds
On behalf of the Indian Government, RBI issues the RBI Savings Bonds. These bonds have an interest rate of 7.75% and a tenure of 7 years. You can opt for either the cumulative option or the non-cumulative option that offers a regular payout.
There are multiple investment options that offer the same features as FD in addition to higher interest rates than FD. Study your opinions properly and select the investment scheme you find most suitable for your financial goals.