Top 7 Investment Options Offering Higher Returns Than FDs

Are you tired of watching your savings grow slowly in Fixed Deposits (FDs)? For a long time, many have relied on FDs as a stable, guaranteed return option for increasing their savings. However, as FD interest rates often lag behind inflation, investors are seeking alternatives that offer returns better than FD without compromising too much on security. This shift has led to the exploration of various alternative investment opportunities. Many options can provide returns significantly higher than traditional fixed-income securities, whether your goal is short-term growth or long-term wealth accumulation.

Let’s examine a few of these choices, highlighting their advantages, disadvantages, and suitability for different types of investors.

Corporate bonds are a solid addition to your investment portfolio, providing high returns. Let’s examine corporate bonds more closely.

Corporate Bonds

Corporate bonds can offer a range of benefits for investors seeking higher returns than traditional FDs. Here are some essential things to consider:

Exotic Returns

Compared to most FDs, corporate bonds can offer higher yields, making them a pleasing option for investors seeking better returns. However, there is usually a higher risk associated with these higher yields.

Protect Your Investments from Inflation

The comparatively larger returns from corporate bonds can hedge against inflation, helping maintain your investment’s actual value. Because inflation often exceeds FD interest rates, corporate bonds contribute to the long-term preservation of purchasing power.

Regular Fixed Income

Like FDs, corporate bonds provide regular income through interest payments, making them a reliable source of periodic returns, especially for those seeking a steady income stream.

Diversification and Variety

Corporate bonds offer diversification across different industries, sectors, and credit ratings. Investors can spread and manage risk according to risk tolerance by selecting various bonds.

Also Read: Investing in Tier 2 Bonds: A Guide for Investors

Credit Risk

Corporate bonds, particularly credit risk, are associated with hazards. A default by the issuing company could result in both principal and interest loss. While corporate bonds are tradable in secondary markets, they may not be as liquid as other investments, like stocks. This raises liquidity concerns; in the secondary market, finding a buyer can be difficult, especially for bonds with lower ratings.

Complexity of Selection

When choosing the best corporate bond, carefully considering the company’s credit rating, financial standing, and market conditions is necessary. This can make corporate bonds more complicated than FDs, which are straightforward.

Despite the higher returns offered by corporate bonds, less experienced investors should carefully consider the risks involved, mainly when investing in them.

Now that we’ve covered the advantages and disadvantages of corporate bonds, let’s discuss mutual funds. These offer professional management, diversification, and higher returns than FD savings accounts.

Mutual Funds

Due to their potential for greater returns and flexibility, mutual funds are a well-liked alternative to FDs in the investing world. Here’s an explanation of what makes mutual funds unique:

Greater Returns Compared to FDs

Mutual funds, particularly equity and hybrid funds, typically offer higher returns than traditional fixed-income securities. For one thing, mutual funds invest in a diverse portfolio of stocks, bonds, and other securities that may appreciate over time, while fixed-rate savings accounts (FDs) offer fixed interest rates.

Managerial Professionalism

Proven experts oversee mutual funds, evaluating market trends and allocating resources to optimize profits. Because of this expertise, investors have less work to do, making it more straightforward for those with little market knowledge to profit from potentially high-performing investments.

Diversity in Different Sectors

Diversification is one of the main benefits of mutual funds. They mitigate the risk associated with any investment by making investments across various industries and asset classes. This helps protect returns by distributing potential losses, especially in a volatile market.

No Limitations on Withdrawals

Mutual funds provide more flexibility than fixed-rate investments (FDs), which lock your money for a predetermined time. Investors can withdraw their money anytime, which might have tax repercussions or exit loads for quick redemptions.

Also Read: Exploring Fixed-Income Mutual Funds: A Secure Investment Choice

Risk Associated with Markets

While mutual funds have the potential to yield higher returns, they are also subject to market fluctuations. Unlike FDs, which guarantee returns, the value of mutual fund investments fluctuates depending on market conditions. Investors must understand this inherent risk.

Costs: Expense Ratio and Management Fees

Mutual funds incur expenses such as an expense ratio and management fees. These costs, which vary based on the fund house and type of fund, are deducted from the fund’s returns. Comprehending these expenses is critical, as they may affect your overall profits.

Absence of Control Over the Selection Process

When investing in mutual funds, you delegate decision-making to fund managers. Although this offers expert management, investors have little say in the specific stocks or bonds included in the fund. This may need to be more appealing for individuals who prefer active investment approaches.

While mutual funds come with fees and market risks, they are desirable for investors seeking higher returns than savings bonds, becoming one of the options better than FD. They may not provide the fixed income security of FDs, but they offer professional management and diversification.

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Expanding on the idea of mutual funds, let’s examine securitized debt instruments. These instruments offer a distinctive structure that may appeal to some investors and promise even higher returns.

Securitized Debt Instruments (SDIs)

For investors looking for higher returns, Securitized Debt Instruments (SDIs) are a better option than traditional FDs in several ways. Here are key points to consider:

Greater Returns

Compared to typical FD rates, which usually range from 6% to 7%, SDIs can offer internal rates of return (IRR) up to 19%. This potential for more significant returns makes them an amazing option for investors who want to maximize profits.

Fixed Non-Market Linked Returns

Unlike mutual funds or equities, SDIs offer fixed returns that are not affected by stock market fluctuations. This predictability can be attractive for conservative investors seeking consistent income streams.

Diversity

SDIs are backed by various underlying assets, including mortgages, leases, and loans. This diversification helps lower the overall risk of the investment, as the failure of a single asset only sometimes impacts the portfolio as a whole.

Security Cover and Over-Collateralization

Securitized Debt Instruments (SDIs) often incorporate over-collateralization, which means the value of the underlying assets exceeds the total amount of issued securities. This safeguard reduces the possibility of loss because the excess collateral can be liquidated in the event of a default.

Also Read: Understanding How Collateralized Debt Obligation Works

Default Risk

Even with over-collateralization, there is still a chance of payment defaults if the underlying borrowers or assets do not perform well. Defaults can negatively impact returns.

Low Liquidity

SDIs are generally less liquid than other investments, making them harder to sell in secondary markets. This can be a drawback for investors needing instant money access.

Complexity

SDIs are more complex than traditional investments. They involve pooling several loans, and securities based on these assets are then issued. Novice investors may need help understanding the nuances of how these instruments operate.

SDIs offer higher returns and diversification, making them a compelling choice for those seeking investments better than FDs. However, they also come with risks and complexities, such as low liquidity and potential payment defaults. Before investing, ensure you fully understand these instruments or seek professional advice.

Now that we’ve examined SDIs, it’s time to focus on fractional commercial real estate. This is a great choice for people looking for a high, steady income with low startup costs.

Fractional Commercial Real Estate (CRE)

A desirable investment choice that yields more significant returns better than traditional FDs is fractional commercial real estate (CRE). It enables investors to own a piece of valuable commercial real estate for a fraction of the price, with entry points as low as ₹1 lakh. Here are its salient characteristics:

Minimal Startup Costs

Fractional CRE has much lower startup costs than direct real estate investments, which opens it up to a broader group of investors.

High Stable Income

Investors anticipate yields of up to 12%, significantly higher than returns on FDs. The rental income from the commercial property is the primary source of this revenue.

Expert Management

The properties are overseen by seasoned experts, guaranteeing investors trouble-free upkeep and seamless operations.

Potential Capital Appreciation

In addition to generating a steady stream of rent, the property’s value might increase over time, offering the chance to make capital gains.

Also Read: Fractional Ownership: Transforming Real Estate Investing

Restrictions on Investor Control

Since property managers are in charge of day-to-day operations and strategic choices, investors usually need more influence.

Risk of Tenant Nonpayment

Although professional management helps reduce this risk, there is always a chance that tenants will need to catch up on their rent, which could disrupt the revenue stream.

Charges & Fees

Various charges, such as transaction and management fees, should be disclosed to investors, as they may marginally lower total returns.

Compared to FDs, fractional real estate investing (CRE) offers lower costs and all the advantages of real estate investing, making it a better option for investors seeking higher returns. Before committing, it’s crucial to consider the costs and risks involved.

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Despite its lengthy lock-in period, the Public Provident Fund (PPF) offers tax advantages and security, so it’s vital to recognize it as we examine the wide range of investment options. Let’s move on from PPF and look at government securities, which are renowned for their high security and consistent returns, making them appropriate for conservative investors.

Public Provident Fund (PPF)

In India, the Public Provident Fund (PPF) is a popular investment option that offers several advantages that are better than traditional FDs. Here are the key features:

Tax Savings

Governed by the Exempt-Exempt-Exempt (EEE) tax system, all contributions, interest, and withdrawals are tax-free, making it an excellent choice for maximizing tax efficiency.

Variable Investment Frequency

Contributions can be made monthly, quarterly, or annually, with a minimum of ₹500 and a maximum of ₹1.5 lakh per year.

Partial Withdrawal

After 6 years, investors can withdraw up to 50% of their account balance, providing liquidity during emergencies.

Also Read: Top Investment Options in India: Mutual Funds, PPF, FDs & More

Extensive Lock-In Period

With a minimum lock-in period of 15 years, PPF promotes long-term financial planning and responsible investing.

Fixed Interest Rates

Although typically lower than other investments, the fixed interest rate (currently around 7.1% annually) and government backing make PPF alluring.

PPF is a secure, tax-efficient investment that aids long-term wealth accumulation and offers liquidity through partial withdrawals after 7 years, making it a better option than FD for long-term planners.

Let’s move on from PPF and look at government securities. These securities are regarded for their high security and consistent returns, making them appropriate for conservative investors.

Government Securities

Fixed Deposits (FDs) are less reliable than government securities, which can yield higher returns and are generally considered better than FDs. Here’s an overview of the benefits and considerations when investing in government securities:

Consistent Returns

Bonds and Treasury bills are examples of government securities offering consistent returns, usually higher than mutual funds and better than FD. These securities typically have fixed interest rates, providing a steady income stream.

Security

Being backed by the government lowers the risk of default, which is one of the main benefits of government securities. These securities are among the safest investment options because investors can rely on receiving their principal and interest payments.

Extended-Duration Investment

Government securities often have longer maturities, spanning several years to several decades. This long-term nature is perfect for investors looking to secure their money for a long time because it enables them to take advantage of compound interest over time.

Also Read: Government Bonds in India: A Complete Guide

Market Risk Consideration

Even though government securities typically carry low risk, market risk still exists. Their value can fluctuate based on interest rate changes and economic conditions. For example, the value of existing bonds may decrease if interest rates increase. Investors should take this into account when determining their investment horizon.

Ideal for Conservative Investors

Government securities are especially suitable for conservative investors who value capital preservation over high-risk returns. They offer a haven for investors who might be reluctant to invest in stocks or other riskier assets, allowing their money to be protected while still yielding respectable returns.

Government securities present an alluring alternative and are better than FD. Even though they carry market risks, they are an excellent option for conservative investors due to their government backing and suitability for long-term investments.

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In this section, we will discuss REITs, which offer exposure to the real estate market, the possibility of capital growth, and rental income.

Real Estate Investment Trusts (REITs)

For those looking for higher returns than traditional FDs, investing in Real Estate Investment Trusts (REITs) can be a great option and are often considered better than FDs. Here’s where REITs differ:

Exposure to the Real Estate Sector

REITs give a special opportunity to invest in real estate without the headaches of property management. Investors can effectively gain exposure to the real estate sector through their typical investment portfolio, which comprises a variety of properties, such as residential, commercial, and industrial spaces.

Rental Income and Capital Appreciation

REITs have the potential for both rental income and capital appreciation. By law, REITs are mandated to distribute a minimum of 90% of taxable income as dividends, providing investors with significant cash flow. Investors also benefit from increases in share prices as the underlying properties’ values increase over time.

Transparency and Liquidity

Traditional real estate investments do not provide the liquidity that publicly traded REITs do. It’s easier for investors to trade REIT shares on stock exchanges, streamlining access to their money when needed. Furthermore, regulatory oversight and the requirement to regularly disclose financial performance improve the transparency of publicly traded REITs.

Also Read: NRI Real Estate Investment in India: A Comprehensive Guide

Diversification Benefits

Including REITs in an investment portfolio can enhance the benefits of diversification. REITs generally have a low correlation with other asset classes, like bonds and stocks, meaning they can help reduce total risk while potentially improving returns. This diversification is notably beneficial in volatile markets.

Possibility of Greater Long-Term Returns

REITs have regularly outperformed conventional fixed-income investments, including FDs, regarding total returns in the past. Their consistent income streams and the gradual increase in real estate values are the reasons behind their success, making them better than FD and a better option for long-term investors.

REITs offer a blend of income, appreciation potential, liquidity, and diversification, making them a favorable alternative to Fixed Deposits for investors looking to boost their returns. They are often better than FDs.

Conclusion

If you only invest your money in fixed deposits (FDs), your choices are limited, and FDs normally offer lower interest rates than other investments. Many alternative investments are better than FD in terms of returns. Investing in different things—like stocks, bonds, real estate, and commodities—can make more money and lessen the chance of significant losses.

For example, stocks, mutual funds, and exchange-traded funds (ETFs) often provide better returns than FDs. Mutual funds are professionally managed and can cater to different levels of risk. Stocks can grow enormously, and in a booming economy, real estate and certain bonds can also give you several options better than FD returns. Everyone has different risk levels based on their age, income, goals, and how much risk they’re comfortable with. Younger investors might be okay with taking more risks for higher returns, while older investors close to retirement might want safer investments.

A balanced investment portfolio should include different assets matching your goals and risk level. Mixing things up permits you to enjoy higher returns from real estate or stocks while still having the safety net of fixed-income securities like FDs. If you want to grow your money, try moving beyond fixed deposits and look into various investment options that are better than FDs. 

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