Interest rates are on a downward trajectory. In fact, majority of banks have also cut their fixed deposit rates. State Bank of India, the biggest lender, has cut interest rates twice recently. Currently, it is offering an interest of 6.50 per cent on one-year fixed deposit. It can be financially stressful, especially for retirees, who depend on bank fixed deposits for regular income.Here are some of the other investment options in the current scenario.
FD offered by small finance banks
There are a few small finance banks which offer interest rates higher than those in bigger banks in order to attract customers. For example, Jana Small Finance and Utkarsh Bank are offering an interest of 8.50 per cent on a one-year fixed deposit.
You can go for these fixed deposits as these banks are regulated by RBI and are covered under the Deposit Insurance and Credit Guarantee Corporation of India.
Post office schemes
This is the most popular saving schemes which generally offer higher interest rate than that of banks.
The interest rates on SSS are pegged to the interest rates of government securities of similar maturity and are revised quarterly.PPF is a good long-term option as not only the income as well as principal is guaranteed. It falls under exempt, exempt and exempt category, where the investment, the income as well as the maturity proceeds are tax-free. There are other SSS such as national savings certificate, which is currently offering an interest rate of 7.9 per cent and is also qualified for tax breaks under section 80-C. Tax-free bonds
Government entities from time to time issue tax-free bonds which you can invest in. These bonds are long-term in nature and are generally issued for 10,15 or 20 years tenure. As these are issued by government entities the risks are lower. As the interest income is not taxable these can be a good option for those in the higher tax brackets intending to lock-in money for long-term.
Arbitrage mutual fund
These are the mutual funds that basically leverage the differential in price between cash and derivative markets. They are treated like equity funds for taxation purposes. As per Value Research data, arbitrage funds have delivered a return of six per cent over the past one year ending September 17, 2019.
Debt mutual funds
Debt mutual funds are tax efficient over the long-term. They provide indexation benefit which lowers the tax outgo. There are multiple categories of funds and investor should choose the one that suits their risk profile.
Investors should look at the portfolio of the debt fund before investing and should go for funds that invest in highly rated papers. Non convertible debentures (NCDs)
These are long-term bonds issued by companies. There are two types of NCDs - secured and unsecured. Investors should go for secured NCDs so that in case the company goes for bankruptcy, they are treated as secured financial creditors. Investors should also be aware of risks associated with NCDs.
Most importantly, instead of investing in one NCD, investors should spread their investment across different issues.