Investing carefully is crucial for achieving financial goals and securing a comfortable future. Making informed and strategic investment decisions is paramount to achieving one’s monetary aspirations and ensuring a secure and prosperous future. The choices we make today about allocating our funds will profoundly impact our long-term financial well-being. One basic knowledge to have is “you can earn better return than an FD!”
In terms of investment, Fixed Deposit (FD) is considered a secure investment option. Fixed deposits are widely favored among Indian investors due to their popularity and perceived low-risk nature. The fixed interest rate structure also simplifies investment planning.
However, a significant drawback of FD is their returns, which might struggle to outpace inflation. If the FD interest rates remain below the inflation rate, your investment’s real value could diminish over the long term. The interest rates on bank fixed deposits have decreased to levels reminiscent of those in 2004-05. SBI Bank, for example, is currently providing varying interest rates ranging from 3.00% to 6.66% per annum for general customers across different time periods.
Considering that FDs, a favored choice for many, might not yield optimal benefits, let’s explore alternative high returns investment avenues that offer the potential for higher returns.
Investment Avenues for Better Return Than FD
Analyzing the worth of risk-adjusted investment requires thorough examination, and the returns might differ based on your comparison criteria. In this case, we’re using returns as a way to measure.
If you are a conventional investor, and that is why you invest in FDs, then exploring bond investments might be wise for you. Bonds act as debt instruments issued by governments and corporations to raise funds. These can be considered as a loan to the entity. When you buy these bonds, you’re actually lending money to the company or government issuing the bond. In return for your loan, they’ll pay you a steady interest until the bond matures. When the bond reaches the maturity of tenure, you get your initial investment back, and this is known as the face value. The difference that sets bond investments apart is their interest rates, often higher than FD rates, and they can even outpace inflation.
Bond investments are also more highly liquid than FDs. FDs have a fixed lock-in period, and you might have to pay penalties in case of early withdrawal. But bonds can be traded on the secondary market, which enhances their liquidity. Yet, remember that various factors affect liquidity, which requires careful consideration.
Investing in the stock market has the best chance for huge potential growth. For example, Nifty, the index that tracks India’s top companies, has gone up by more than 58% in the last five years, up to 2022. That means if you had put your money in the index, it would have grown by over 58%. Nifty monitors and showcases the performance of the whole stock market in India. These points make stocks a better investment option with high return potential. But at the same time, stocks also come with more risks because they can go up and down a lot, which is called volatility. Another issue with stocks is acknowledging the trends of the market. You might have to understand it perfectly to pick the right stocks according to your investment goals and the risk factor you are comfortable with. You’ll also need to monitor your stocks often to ensure your portfolio is functioning according to your set goals. These things could be considered a setback to FDs.
As mentioned above, a stock market investment is very beneficial, but it usually comes with a higher chance of risk and requires expertise to manage it. But mutual funds might solve this problem and help you earn a better return than a traditional fd. In the case of Mutual Funds, you can jump through the process of selecting the stocks and managing the portfolios; here, you could invest in a professionally managed portfolio using mutual funds. Mutual funds consist of experienced fund managers who can design and manage the portfolio. Additionally, stocks are limited, but mutual funds have a variety of assets, like currency, commodities, etc, to invest in. The performance of a fundamental asset decides the returns from mutual funds. Funds that aim at equity usually have a better chance of making more money than those that aim at debts. The return potential, even in debt mutual funds, is much better than FDs, and coming to the cons of mutual funds, includes higher risk factors than FDs.
National Pension Scheme
Many individuals invest in FDs with the mindset of having a retirement fund. But FDs often fail to match the purpose of saving that money. If you’re intending to build a retirement fund, NPS could be a better option. The National Pension Scheme is a government scheme that makes it easy for a person to build a retirement plan. It runs till you’re 60, allowing you to invest small amounts regularly to grow a decent retirement fund over time. With NPS, you can pick a portfolio to invest in; it includes the things that follow the market. This gives NPS a better chance of making more money than FDs. You could get returns between 11% to 14%, depending on where your money goes. But remember, you can’t take your money out of NPS easily. Usually, you can only do that after it’s time to retire. But that’s alright if your goal is to save for retirement.
Corporate Fixed Deposits
Corporate fixed deposits are like FD plans given by companies that aren’t banks. They usually pay around 7.05% to 8.50% interest, which is more than regular bank FDs and can beat inflation. However, since these aren’t from banks, they come with more risk, and they’re not protected by DICGC like bank FDs are. Pick one from a reliable company to ensure your corporate FD is a better choice than bank FDs.
It makes sense why many people prefer safe investments like FDs from reliable banks. However, the returns we get from FDs often can’t keep up with inflation, which ultimately means you’re not ending up with a positive financial outcome. So considering all the options mentioned above could be a smart move, especially if your goals and how much risk you’re comfortable with allow for it.
If you’re looking for ways to make your money work harder and secure a better financial future, it’s time to consider alternative investment avenues. Discover several methods with Bhive Alts on how you can potentially invest your money other than FDs to achieve higher returns.