New Delhi Fixed deposit (FD) rates for customers of large banks have been declining steadily over the past decade. It declined from about 8.2% in 2011 to 7.9% in 2014 and finally to around 5% in 2021. Thus, investing in FDs may not be beneficial, especially for customers in the 30% tax bracket, as the current effective rate becomes only 3.5% after tax, said Prateek Mehta, co-founder and chief business officer, Scripbox. .
Due to weak economic conditions, exacerbated by the COVID-19 pandemic, central banks around the world are cutting interest rates. Investment experts say the high interest rate phase for FDs doesn’t seem to be returning anytime soon. Thus, investors can look for alternative investment options that offer moderately high fixed returns in such scenarios.
AAA corporate FDs, which are similar to regular FDs and offered by NBFCs, can be an option as they offer pre-tax rates of up to 6.5% and post-tax rates of 4.5%. Similarly, AAA corporate bonds may also offer 6% post-tax with additional indexation benefit on long-term capital gains. It is important to note that deposits with AAA (highest rating) ratings are safer than those with AA, A or BBB ratings.
FDs in small finance banks offer pre-tax interest rates of up to 7% on amounts ₹5 lakh per bank. Mehta said the National Savings Certificates (NSCs) issued by the government can offer an interest rate of around 6.8%, making them a safe and profitable investment option.
for small savings of up to ₹1.5 lakh per annum, Public Provident Fund (PPF) offers various interest rates with the current interest rate of 7.10%, and these are not taxed.
Mehta further added, “With returns of up to 6%, guaranteed income life insurance plans can be a more profitable investment bet than FDs as these returns are also not taxable as per the existing law.”
In addition, specific savings schemes/FDs may offer a higher pre-tax rate of 7.2% for senior citizens. SCSS (Senior Citizen Savings Scheme) offering 7.4% and PMVVY (PM Vyaya Vandana Yojna) are good products that senior citizens can avail.
noteworthy
All of these investment plans have different structures, and thus, the suitability for each may vary across all sectors of investors based on their goals and expectations. It is essential to seek the help of an investment advisor before focusing on any investment product.
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