Alternative To Fixed Deposit: 14 Places To Invest Better Than FD

Alternative to fixed deposit

Fixed Deposits (FDs) are regarded as the safest forms of investment options among the numerous ones that are currently available in the market. This is particularly true for investors who are afraid of taking risks. Government bonds, debt mutual funds, equity funds, chit funds and other instruments have grown in popularity as FD alternatives over the past few years. These investment options offer a substantially greater rate of return while also enabling investors to diversify their portfolios. As a result, they have seen a sharp increase in popularity as an investment alternative to fixed deposit. In this post, we’ll look more closely at the more widely used fixed deposit alternatives.

Earn 3 To 4 Times More Than Bank Fixed Deposits 

Why should you need alternatives to fixed deposits in 2022?

In India, fixed deposits have traditionally been one of the most popular options for risk-free investment. There are several reasons why people do not think beyond FDs. However, awareness has grown across the nation as a result of numerous activities aimed at investor education. Retail investors are now considering fixed deposit alternatives and showing interest in other fixed income products.

The rate of interest in FDs is normally low. There has been record growth in the inflation rate worldwide in 2022 which has resulted in many problems. Hence, the continued growing inflation rate has forced investors to find alternatives to fixed deposits in 2022.

Alternatives to Fixed Deposits

If you are looking to invest your surplus funds, here are some fixed deposit alternatives amid high inflation rates that you should consider:

Debt Mutual Funds

Debt mutual funds are an excellent alternative to fixed deposits if you want to diversify your portfolio. It is a type of mutual fund, also known as fixed-income funds, that offers investments in fixed-income assets such as corporate debt securities and government bonds. This investment vehicle appeals to investors because of its low entrance barrier, fund security, and regular return characteristics.

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Liquid Funds

A type of mutual fund called a “liquid fund” invests your money in high-quality marketable securities that mature in 91 days or less. This investment option gives you more financial flexibility because they don’t have a lock-in term like fixed deposits do. You should be aware that returns on liquid funds are not guaranteed because they fluctuate based on market performance. The majority of investors choose to create an “emergency fund” that they can access at any time by investing in liquid funds.

Equity Funds

Equity funds, one of the most widely used investment tools in India, are a superb alternative to fixed deposit. An equity fund is a type of mutual fund run by a “fund manager” who invests your money in a variety of stocks and shares of different publicly traded firms. Equity funds come in two different varieties: passive equity funds and active equity funds. Your fund manager will select a portfolio of businesses to invest in based on the Sensex or Nifty index in order to manage passive equity funds. For active equity funds, your fund manager will carry out extensive research and select a choice of stocks that will provide the most advantageous rate of returns.

Fixed Maturity Plans

These mutual fund schemes are closed-ended and time-limited. Your funds will be invested in bonds and fixed income securities so that their maturities match the duration of the scheme. Depending on the strategy, the duration can range from a few months to a few years. Similar to a fixed deposit, FMPs are typically locked at market interest rates, protecting investors from a future decline in rates.

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Sovereign Gold Bonds (SGBs)

Investors turn to safe assets like gold in an uncertain economic condition. The Sovereign Gold Bond (SGB) Scheme is a form of public security that is valued in gold units. Owning gold on paper in this way is practical. This means that when you acquire a specific amount of gold through this plan, you will also acquire an equivalent amount of bonds. By doing so, you are able to benefit from both rising gold prices and bond interest when they mature. These can be purchased from the Reserve Bank of India (RBI) and they serve as a perfect fixed deposit alternative.

Corporate Fixed Deposits

As the name suggests, this type of investment mainly pertains to fixed deposits offered by businesses. An alternative to fixed deposits, this type of investment has variable term options and provides higher returns than standard FDs. However, corporate fixed deposits are less secure than standard fixed deposits. If you wish to invest in corporate fixed deposits, be careful to only invest in FDs given by reputable, well-established businesses.

Government Bonds

Government bonds are the most secure type of investment when compared to all the other fixed deposit alternatives. Even though their rate of return is only slightly greater than that of standard fixed deposits, most investors choose government bonds because of the high level of security they provide. Government bonds have a longer lock-in period, so they are not the ideal choice for individuals seeking liquidity. However, they do provide a fantastic choice for portfolio diversification at a lower risk.

Public Provident Fund

Public Provident Fund (PPF) is a retirement savings scheme offered by the Government of India with the aim of providing a secure post-retirement life to everyone. The minimum deposit you must make in the account per financial year is Rs. 500 and it can go up to Rs. 1.5 lakh.

Kisan Vikas Patra

Kisan Vikas Patra (KVP) is basically the Indian Government’s initiative to encourage small savings schemes in the country for the investor’s secure future. It is a fixed rate small savings scheme designed to double your investment after a fixed period of time (124 months currently).

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Senior Citizens' Savings Scheme

A Senior Citizens’ Saving Scheme (SCSS) offers retirement benefits to people over 60 years and is backed by the Government of India. Currently it offers 7.4% interest, which is higher than most government schemes.

Related: What is the best way to invest money and get good returns for a retired person?

Other Investment Options

Let’s look at some other investment options in India:

Chit Funds

 Chit funds are a very powerful and simple financial instrument. It is both an investment and a credit instrument. You can put in your surplus funds month on month for a fixed tenure of 2-3 years. You have the option to withdraw the entire chit amount when you have the need for that money, anytime during that tenure. No loans, no repayment liabilities.

The Money Club is an online digital, registered chit fund platform where you can earn 10%-15% returns year on year. With registered chit fund platforms, your money is as secure as in a bank. It is expected that chit funds would hold between 15% and 20% of all savings in India, within the next ten years.

Related: Traditional Chit fund Companies vs The Money Club

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Stock Market

The stock market is another excellent way to make money, but it requires a lot of work and research. It can be very profitable if you’re willing to put in the time and effort. The stocks of different companies are traded on the stock market which provides investors with an opportunity to make money.

Mutual Funds

For those who want to diversify their portfolio of investments with lower risk than stocks or bonds, mutual funds are another option. With the help of mutual funds, investors can pool their resources to purchase additional shares of stock in firms without having to spend as much money individually every time they wish to add something new to their investing portfolio (s). As a result, they are able to earn higher profits than they would have by making individual investments.

Related: Chit Fund vs Mutual Funds

Real Estate

Another excellent investment choice in India is real estate. It offers better returns than fixed deposits. Real estate prices have a tendency to rise over time, so if you purchase property today at a cheap price, you might be able to sell it in the future for a much higher sum if those prices start rising once more.

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Final Takeaway

Depending on the investment type and duration you choose, each of these instruments has different tax implications. In order to prevent your larger returns from being cancelled out by your tax obligation, it is crucial to do your research. Before making an investment decision, please consider the tax implications.

Having explained all 14 alternatives to fixed deposit, you can now diversify your portfolio.  But, remember to do so with ample care and research.