FD Alternatives - 3 Investment Options with Similar Risk Return Ratio

Since time immemorial, fixed deposits (FDs) have been the go-to investment option for Indians. Even today, when there is a plethora of investment options available, the love for FDs continues unabated. As per a report, India has ₹103 trillion saved across 24.23 million deposits . Safety and assured returns are probably the biggest USPs of FDs.

That said, there are many FD alternatives with similar risk-return ratios. These alternatives to FDs can help you diversify your portfolio without taking too many risks. What are these? Let’s find out!

Alternative to FDs you can look at

Here are some common FD alternatives you can add to your portfolio:

• Tax-free bonds

Government enterprises issue tax-free bonds for particular purposes. Municipal bonds issued by municipal corporations are an example of such bonds. Offering a fixed interest rate, these are low-risk financial instruments. True to their name, you get complete tax exemption on the interest earned from these bonds as per section 10 of the Income Tax Act, unlike FDs, where the interest earned is taxable.

As the interest earned is entirely tax-free some consider them a better option than fixed deposits. Tax-free bonds have a long-term maturity of 10 years or more . Since government enterprises issue them, they are less likely to default.

• Non-convertible debentures

Non-convertible debentures, or NCDs, are fixed-income instruments issued by high-rated companies. They generally offer relatively higher interest rates than convertible debentures. NCDs have a fixed maturity date, and the interest is paid along with the principal either monthly, quarterly, or annually. As NCDs fall in the debt category, you can't convert them into equity or stocks.

Before investing in NCDs, it is crucial to analyse the company's credit rating. The higher the rating, the better. It means that the company is more likely to fulfil its credit obligations.

• Sovereign gold bonds

Sovereign gold bonds, or SGBs, are an alternative investment to physical gold. Introduced by the Indian Government in 2015 under the gold monetisation scheme, their value is denominated in multiple grams of gold.

SGBs offer an interest of 2.5% per annum, that’s credited semi-annually into your account . The maturity period of SGBs is 8 years. However, if wanted, you can choose to exit from the fifth year. If you wish to purchase SGBs, you can do so from a SEBI-registered broker or agent.

Wrapping it up

If you are looking for investments better than FDs, you can contemplate investing in the financial instruments mentioned above. That said, no investment is inherently good or bad. It depends on your risk tolerance and financial goals. Most of these investments form the debt portion of your portfolio, providing stability and cushion against market volatility. Happy investing!

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI-prescribed Combined Risk Disclosure Document before investing. Brokerage will not exceed SEBI’s prescribed limit.