Become Rich: 5 Safe Investments With Low Risk

Make sure you invest in financial instruments, whose returns beat inflation. Inflation is quite high and if the returns from your investments are not good, (Fail to beat inflation), the real returns are 0. Do you want zero returns from your investment?

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Become Rich: 5 Safe investments without taking risk

The consumer-level real inflation in India is growing by 7-8% on an average. Therefore, to earn real returns and beat inflation, you can consider the following investment avenues which are capable of giving you more than 8% return:

1. Bank Deposits:

• Most banks pay interest of around 6-7% per year on fixed deposits (FDs). But if you dig deeper, some banks pay interest as high as 8.25% on long-term FDs.
• Fixed deposits are one of the safest investment options around. The interest rate is locked-in for the tenure.
• The senior citizen FD interest rates are even higher.

Banks will deduct TDS on FD interest income at 10%, if it exceeds Rs 10,000 in a financial year. If you don’t submit the PAN details, its 20%. This income is added to your total income and taxed at income tax slab rates, which are applicable to you.

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2. Company fixed deposits:

• Company FDs are similar to bank FDs. They are great if you want to deposit money for a fixed period of time.
• Like bank FDs, company fixed deposits also earn a fixed rate of return.
• Generally, company FDs having a maturity term of more than 12 to 15 months and offer higher returns than FDs.

Company deposits are unsecured. So, it is good to confirm if they are secured before investing. Also, you may not have any lien on asset of the company in case of default. So, run a background check of the company before you decide to deposit your hard earned money and check the rating of the Company before you invest.

3. Non-convertible debentures:

• Non-convertible debentures are popularly known as NCDs. They are suitable for investors with moderate or high risk appetite.
• NCDs offer around 8-9.5% in interest.
• When investing in NCDs, apart from coupon rates, you should also consider factors like credit rating of the issuer, liquidity and residual maturity or the tenure of the issue. Residual maturity means the remaining time until the maturity of the instrument.
• Issuers with lower credit ratings pay higher coupon rates to investors. This is because they have a higher risk of default.

Although NCDs are traded on stock exchanges, they are not liquid. Hence, you may have to sell your NCDs at a discount in times of financial emergencies.

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4. Mutual funds:

• Mutual funds have gained immense popularity post-demonetization. Thanks to AMFI and the aggressive promotion of their campaign ‘Mutual Funds Sahi Hai’, most Indians are now comfortable, investing in mutual funds.
• Equity funds and equity hybrid funds are capable of giving more than 8% returns. Nevertheless, mutual fund returns are not guaranteed as they are greatly influenced by market fluctuations.
• Except for international funds and infrastructure thematic funds, the annualized category returns of most equity MFs over the last decade are between 11-16% per annum.
• Equity hybrid funds or aggressive hybrid funds have nearly 12% Compounded Annual Growth Rate (CAGR).

Be informed that the returns on equity and equity-oriented mutual funds are taxed as long-term capital gains. If you are new to mutual funds, investing in large-cap equity funds are a good thing, as the market will be volatile over the next months.

5. National Pension Scheme

• NPS is a great option if you are investing / saving for retirement purposes.
• They give you more than 8% returns. Again, the returns are not fixed.
• NPS funds are regulated by the PFRDA.
• The guidelines ensure minimal impact on subscriber’s contributions. This is because the investment mix has debts instruments like Government Securities and Corporate Bonds.
• Over the last year, the equity plans of NPS have generated returns between 7.90% and 14.3%. Equity plans with 5-year tenure have given returns between 12% and 15%.

Keep in mind that you will have to use at least 40% of the corpus to purchase an annuity. This ensures that you get a monthly pension after retirement. You can withdraw the remaining balance as a lump-sum. If the accumulated corpus at the time of exit is Rs 2 Lakhs or less, you may withdraw the entire corpus as a lump sum.

Conclusion:

Invest in those avenues which are capable of giving you post-tax returns that actually beat inflation. Also, have your investment mix designed in such a way that the investment products, match your risk appetite.

Be Wise, Get Rich.

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