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Best Fixed Return Investments in India

We’ve all heard people say, “time is money”.

But… Um… How much money? And in how much time?

Considering factors such as your risk appetite, investment goals, and the prevailing economic conditions before choosing any fixed return investment plan is obviously super important, but you can also go one step further, and try to determine how much money you want to invest, how much money you will earn on that investment, and in how much time. 

How? By diversifying into fixed return investments!

What is a fixed return investment?

As the name suggests, a fixed return investment, or a fixed income investment is a type of investment that offers investors a stream of income – on a fixed schedule. However, the returns of fixed return investments depend on factors like your investment amount, your chosen interest rate, the tenure of the investment, and, of course, the instrument of investment that you end up choosing.

So, we thought we’d share some of the best fixed return investments in India that are popular among investors who are looking for options wherein their earning potential is clear and defined from the get-go. Here is a list of fixed return investment options that you can check out – 

Fixed Deposit (FD) – Fixed Deposits are one of the most popular fixed return investments in India. We’re sure you’ve heard your parents and even your grandparents talk about how their money is in a Fixed Deposit.

You can create a fixed deposit in any bank and some financial institutions. To create a Fixed Deposit, you are required to deposit a lump sum amount for a fixed period at a fixed interest rate. This is a beneficial instrument of investment because it provides capital protection in addition to guaranteed returns (only subject to the bank’s own performance).

While this is a fixed return investment, the general range of interest can vary from 4-8%. It is also important to note that while the returns earned on Fixed Deposits are taxable (depending on your income slab), there are also tax-saving FD options available in some banks.

FDs are usually not easy to liquidate before maturity, and if they are liquidated, you would likely be redeeming them at an incurred cost.

Public Provident Fund (PPF) – Did you want a fixed return investment? Well, you got it! Buckle in for this one because a PPF is also a long-term investment with a lock-in period of 15 years! In a technical sense, PPF is defined as a long-term saving scheme offered by the government.

You can invest as little as ₹500 and as much as ₹1.5 lakhs annually into your PPF account, which, as things stand today, is offering a 7.1% interest rate to investors (but this interest rate is subject to change with every annual budget). PPF investments are tax-deductible under Section 80C of the Income Tax Act, and the maturity proceeds are tax-free.

This is an interesting fixed return investment because it does allow a partial withdrawal (subject to certain conditions) once you have stayed invested for a 7-year period. At the end of the whole 15 years, however, you can either withdraw your money and close the account, or choose to continue it indefinitely by renewing it for five-year periods.

National Savings Certificate (NSC) – An NSC is a government-backed savings scheme that offers a fixed rate of interest, qualifying it as a fixed return investment in India.

NSCs have a maturity period of 5 years and you will not be able to redeem your investment and returns before this period is over. Currently, NSCs offer investors an interest rate of 7.7.% (subject to change with the annual budget).

You can invest as little as ₹1,000 into an NSC, and there is no maximum limit for investment amounts. Keep in mind that the interest accrued through an NSC is taxable, but it qualifies for tax benefits (of up to ₹1.5 lakhs)  under Section 80C of the Income Tax Act of India.

Now, where exactly can you purchase an NSC? You have to go a bit retro with this and find your nearest post office – you can only purchase an NSC there, after carrying out the due process for your KYC.

Corporate Fixed Deposit – Corporate fixed deposits are similar to bank FDs but are offered by non-banking financial companies (NBFCs) and corporations.

The best Corporate FDs in India are graded by agencies like ICRA, CRISIL, and CARE. These fixed return investments can offer higher interest rates than traditional Fixed Deposits, but they also carry more risk than traditional FDs.

It is also important to note that the interest rates in the case of Corporate FDs vary from company to company, and can also be influenced by the tenure of the investment. So, as an investor, the onus of thorough research falls on you – you must check the credibility and performance of the company before investing in its Corporate FD.

As for the returns on investment – interest earned through Corporate FDs is taxable if it exceeds ₹5,000, and you can redeem returns monthly, quarterly (every 3 months), bi-annually (every 6 months), or annually.

Post Office Monthly Income Scheme (POMIS) – POMIS is a fixed return investment scheme offered by the Indian Postal Service.

You have to carry out the KYC process and open a POMIS account with your nearest post office, and this account can be held by an individual or in a joint capacity. Investors are permitted to invest as little as ₹1,000, with a maximum limit of ₹9 lakhs in the individual account, and ₹15 lakhs in the joint account, annually.

The caveat with this very attractive long-term investment scheme is that there is a 5-year lock-in period associated with POMIS investments, and breaching that tenure will result in you incurring transaction charges on your withdrawal.

You can, however, opt to withdraw your monthly interest by linking your POMIS account to your regular bank account – though there are no provisions for tax-saving associated with this kind of investment.

We always recommend doing your due diligence before investing anywhere! And this remains sound advice to adhere to when exploring fixed return investment options in India as well. Always remember that though there is a ‘fixed’ element to these investments, the rates of interest associated with most of them vary from year to year.

So, you have to be prudent in your research, and make sure that the duration of fixed return investments aligns with your personal and financial goals.

Ultimately, these kinds of investments can be great to set up a fixed monthly return investment plan (or quarterly or yearly!) to meet short-term and long-term goals, but they are also valuable tools for wealth creation!

FAQs

What is a fixed return investment?

A fixed return investment, or a fixed income investment is a type of investment that offers investors a stream of income – on a fixed schedule.

What is the maturity period for a PPF?

A PPF matures in 15 years, after which you can withdraw the whole amount (which is tax-free). You are allowed to make a partial withdrawal after 7 years, subject to a few conditions.

What are the investment limits in POMIS?

Investors are permitted to invest as little as ₹1,000, with a maximum limit of ₹9 lakhs in the individual account, and ₹15 lakhs in the joint account, annually into their POMIS account.

Is the interest earned on Corporate FDs taxable?

Yes, any income from Corporate FDs exceeding ₹5,000 is taxable.

Can I break an FD before its maturity period?

Yes. But you may be liable to pay a transactional penalty on your withdrawal.

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