In an emerging economy wherein the inflation rate is growing by 6%, investing money in traditional saving schemes is a sub-optimal strategy. As inflation is eating the returns accrued from the investments made in varied asset classes. If the returns are less than the inflation rate, then you should revisit the investment strategy and consult a financial advisor. Some of the options that can deliver more than 8% are:
Fixed Deposits (FD):
Even though most of the PSU and private banks are offering FD rates up to 7.5%, there are newly launched banks which have introduced 8% returns on the investments. In order to lure more consumers to open the account in their bank, these banks are offering an attractive rate of interest with no prepayment penalty charges. As the monies invested in fixed deposits are secure and fixed, many people opt for these traditional savings. For instance, Axis Bank offers 7.4% interest rate 1 year 5 days < 1 year 11 days‚Äô tenure. Do remember that the FDs are fully taxable and tax totally depends upon your income tax slab.
Company Fixed Deposit:
These fixed deposits are similar to other FDs offered by banks. These FDs are beneficial for those investors who are looking to invest for a fixed period of time, with a little risk. Although, the returns are secure, but, at times, there are serval companies which have defaulted in repaying the amount. The returns are also on the higher side compared to bank FDs. For instance, Mahindra Finance‚Äôs FD scheme offers 8% for 20 months, 8.5% for 27 months, and 8.75% for 33 months. Similarly, Bajaj Finance, fixed deposits provide a lucrative interest rate of 8.40%. Do remember to check the credentials of the company before investing in such products as the company will be unable to repay if faced with any financial difficulties.
Non-convertible debentures (NCDs):
The NCDs are beneficial for investors having moderate to high-risk appetite, looking to invest in fixed income schemes. There are several NCDs schemed launched by companies such as Indiabulls, TATA Capital, Edelweiss group offering an interest rate up to 9% per annum. You should consider the credit rating, liquidity and financial condition of the issuer as the issuers having lower credit ratings have high default risk. So, they pay a higher interest rate to the investors. Although, NCDs are traded on stock exchanges, but have low liquidity. Any unforeseen circumstances may lead you to sell these NCDs at a discount rate so it is always advisable to wait for the maturity time.
Many equity funds offer double-digit returns depending upon the market cycles. But, large-caps, multi-cap, midcap, small-cap mutual funds offer more than 8% return on investment, if invested wisely and regularly via SIP or lump sum. However, the returns do not guarantee returns, but most of the large caps do deliver more than 10% return on investments. In simple terms, higher the risk, high the reward/return. Even a tax deduction of 10%, these funds do offer attractive returns to investors. You should diversify your mutual fund portfolio to gain maximum in the volatile market. A bias for large-cap equity fund and Hybrid equity funds in current times of volatility can give a higher return in the long run.
National Pension System (NPS):
Investors who are looking to invest for their retirement (60 years) can consider this option. Like mutual funds, the returns from NPS are market-linked. The funds contributed by the investors are invested with PFRDA-registered Pension Fund (PFs). The amount is invested in three securities namely corporate bonds, government securities, and equities. The NPS plans have given returns more than 8% in last one year. Under the NPS scheme, you can withdraw 60% of the amount, but 40% of the corpus should be used to purchase an annuity. If the amount is less than 2 lakhs, then you can withdraw the whole amount.
There is an array of options available to get a return of more than 8% per annum. A diversified portfolio can help you generate higher returns without exposing to any financial risk. Invest regularly and keep an eye out on the opportunities to maximize returns on your investment.