Forget FDs! Invest your money here in the new year for lower risk and higher returns!

Amidst falling FD interest rates, new options have emerged for investors. Corporate FDs and debt mutual funds both offer the potential for better returns than traditional FDs. Here's more about these options for the new year:

As the new year begins, most people set new financial goals. Some want safe investments, while others seek better returns. For years, Fixed Deposits (FDs) have been the first choice for investors, but now the situation is changing. Falling interest rates offered by banks have reduced the appeal of FDs. So the question is, where can you invest your money besides FDs, where the risk is low and the returns are better? At the beginning of the new year, we are telling you about two investment options that can offer a better path than FDs.

Why are people losing interest in FDs?

Investing in FDs is considered easy and safe, but due to the continuous reduction in the repo rate over the past few years, FD interest rates have also been falling. Most banks are offering interest rates of 5 to 6.5 percent or thereabouts on FDs. When you factor in inflation and taxes, the real return becomes even lower. This is why investors are now looking for options where their money is safe and they can earn a little more.

First option: Corporate Fixed Deposits

Just as banks borrow money from people through FDs when they need funds, large and established companies also borrow money from the general public for their businesses. This is called a Corporate FD.

What are the advantages?

The biggest advantage of Corporate FDs is their higher interest rate. They typically offer 1 to 3 percent more return than bank FDs. While bank FDs offer up to 6.5 percent interest, FDs from good companies can offer returns of 8 to 9 percent.

Their maturity period ranges from 1 to 5 years, and like bank FDs, the return is predetermined. Market fluctuations do not directly affect them.

How much risk is involved? The biggest risk in corporate FDs is the possibility of the company defaulting. If the company faces financial difficulties, investors' money could be at risk. While bank FDs offer insurance coverage up to ₹5 lakh, there is no such guarantee with corporate FDs.

How to invest safely?

Always choose companies with good credit ratings. Before investing, check the company's track record for the past 10 to 20 years. Investing in companies that consistently generate profits and have an AAA or AA rating is considered safer.

Another option: Debt Mutual Funds

Debt mutual funds are a type of mutual fund. In this, the fund manager collects money from several investors and invests it in fixed-income options such as government bonds, corporate bonds, and treasury bills. In simple terms, your money is not invested in one place, but spread across several safe options.

What are the advantages?

The biggest advantage of debt mutual funds is diversification. Your money is invested in multiple bonds, which reduces the impact of any single company's failure. Although there is no guarantee of returns, past data suggests that debt funds can provide better returns than FDs in the long term. Returns of 7 to 9 percent can generally be expected. If you invest for more than 3 years, you also get the Indexation Benefit, which significantly reduces the tax burden.

Which option is right for whom?

If you want fixed returns and are willing to take a little more risk, then corporate FDs might be suitable for you.
If you want better returns than FDs along with tax savings and can tolerate some fluctuations, then debt mutual funds could be a better option.

FAQs

Q1. Are corporate FDs safer than bank FDs?

No, bank FDs are safer. Corporate FDs offer higher returns, but the risk is also slightly higher.

Q2. Is there a risk of losing money in debt mutual funds?

The risk of losing all your money is low because the investment is diversified across multiple bonds. However, this market is subject to risk.

Q3. Which investment option offers better returns than an FD?

In the long term, both debt mutual funds and corporate FDs with good ratings can offer better returns than a regular FD.

Q4. Which option is suitable for new investors?

Investors who want to minimize risk can start with debt mutual funds or choose corporate FDs from reliable companies.