Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,999.1059.0
Stock Analysis, IPO, Mutual Funds, Bonds & More

Worried about falling FD rates? Here are 8 good fixed income options to consider

While it is better to have liquidity, it cuts both ways. Some long-term products like EPF are made deliberately less liquid to control the urge to spend.

, ET Bureau|
Jan 22, 2018, 02.35 PM IST
0Comments
ThinkStock Photos
Untitled-111
Pradhan Mantri Vaya Vandana Yojana (PMVVY)is useful for Senior citizens who need regular income & are in lower tax brackets.
Worried about falling FD rates? ET Wealth lists alternatives that offer better rates or greater tax efficiency.

1. Voluntary Provident Fund (VPF)

Interest 8.65%* (same as EPF rate)
Invest for: As long as you continue with EPF
Age: No limit
Investment amount: Depends on salary
Taxation: 80C benefit available; interest is tax free
Useful for: Accumulating long-term wealth without any risk.

*For 2016-17; it is expected to come down a bit for 2017-18

2. Listed PSU bonds (Taxable) (Values taken for SBI Bond N5)

Interest 8.55%
Invest for: 8 years (March 2026)
Age: No limit
Investment amount: No limit
Taxation: Interest and capital gain (if any) taxable
Useful for: Investors who need regular income & are in lower tax brackets.

3. Senior Citizens’ Savings Scheme (SCSS)

Interest 8.3%
Invest for: 5 years, can be extended by 3 more years
Age: Above 60 years (55 for early retirees)
Investment amount: Rs 15 lakh or money received as retirement benefit, whichever is lower.
Taxation: 80C benefit available; interest is taxable
Useful for: Senior citizens who need regular income and are in lower tax brackets.

4. Sukanya Samriddhi Yojana

Interest 8.1%
Invest for: Deposits can be made till the age of 14; maturity at 21.
Age: 10 years or less
Investment amount: Rs 1.5 lakh a year.
Taxation: 80C benefit available; interest is also tax free
Useful for: Building long-term wealth for girl child without any risk.

5. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Interest 8% (this is the pension rate)
Invest for: 10 years
Age: Above 60 years
Investment amount: Up to Rs 7.5 lakh per family (maximum pension of (Rs 5,000 per month)
Taxation: No 80C benefit; pension also taxable
Useful for Senior citizens who need regular income & are in lower tax brackets.

6. Savings (Taxable) Bonds 2018 (RBI Bonds)

Interest 7.75%
Invest for: 7 years
Age: No limit
Investment amount: No limit
Taxation: No 80C benefit; interest also taxable
Useful for: Investors who need regular income and are in lower tax brackets.

7. Public Provident Fund (PPF)

Interest 7.6%
Investment for: 15 years; extendable by blocks of 5 years
Age: No restriction
Investment amount: Rs 1.5 lakh per annum (maximum)
Taxation: 80C benefit available; interest is tax free
Useful for: Accumulating long-term wealth minus any risk.

8. Listed PSU bonds (tax-free) (Values taken for IRFC N2)

Interest 6.29% Yield to maturity (YTM)
Invest: for 9 years (Feb 2027)
Age: No limit
Investment amount: Coupon rates will be 25 bps lower if holding in each series goes above Rs 10 lakh
Taxation: Interest is tax free, but capital gain (if any) taxable.
Useful for investors who need regular income and are in higher tax brackets.

Investing in fixed income products

SLR rule
When it comes to debt products, experts ask investors to stick to the SLR rule (safety, liquidity and return—in that order). We take a look at all factors that need to be assessed while investing in them.

Safety
Since safety of principal is the most important factor, we have kept only the schemes offerred by government or PSUs.

Liquidity
While it is better to have liquidity, it cuts both ways. Some long-term products like EPF, PPF, etc are made deliberately less liquid to control the urge to spend.

Coupon rate and yield
Since face value (interest is paid on this) and market rates vary for listed papers, the yield may vary from the coupon rates.

Capital gains
The capital gain or loss occurs only for the listed papers and investors who invest or exit in the middle. Please note: they have to pay tax on it separately.

Returns
Returns for listed bonds will be interest received plus capital gain or loss. For most other debt products, the coupon rate will be the returns.






Also Read

Kotak Life charges fixed income dealer for fraud

Should you make space for bond ETFs in your fixed income portfolio?

Err on the side of caution when investing in fixed income funds: Dhirendra Kumar

Fixed income investors pick NBFCs over HFCs

Deutsche Bank tells fixed income traders they'll keep jobs

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service