Other Fixed Income Schemes Offering Better Returns than FDs 

You no longer need to fret about the falling interest rates on FDs. As per the historical data fixed income funds perform better than bank FDs especially in a falling interest rate environment. Presently, there are a number of fixed income schemes in India’s financial markets, as per the investor’s preference and risk appetite. Over a period of time, these fixed-income funds have given fairly lucrative and market-related returns to the investors.

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All the major public and private banks like AXIS Bank, HDFC, Canara Bank, and even SBI fd interest rates have also revised their FDs interest rates. Fixed Deposits Interest rates are going to decrease unless there are some changes in the inflation trajectory. You can consider other alternatives that offer better interest rates and greater tax efficiency. Here is a quick rundown of the 6 good fixed income options with better returns.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Voluntary Provident Fund (VPF)

Amid the falling fd interest rates, it is one of the safest investment options. It is a Government of India scheme with fixed interest growth. It is a risk-free long-term investment scheme in comparison to other private schemes.

This scheme is the extension of EPF. The investor has to give a minimum of 12% of the basic salary and dearness allowance in an EPF account. On the other hand, there is no limit in a VPF. It allows voluntary contribution up to a maximum limit of 100%.

At present, VPF offers an interest rate of 8.65% annually. The scheme offers tax exemption up to 1.5 lakh per annum under Section 80C. From a long-term perspective, the scheme offers higher returns. Here is a quick overview of the Voluntary Provident Fund Scheme.

  • Interest: 8.65% (similar to the EPF rate) 
  • Age: There is no age bar   
  • Taxation: U/S 80C (interest is tax free)
  • Investment Duration: As long as you continue with EPF 
  • Investment amount: Based on your salary 
  • Purpose:  Long-term wealth accumulation and risk-free investment

Listed PSU Bonds (Taxable)

Investments in public sector undertaking bonds have minimal credit risk. If you are looking for low-risk investment option then you can invest in a carefully built portfolio of bonds issued by PSUs and Banks.

  • Interest: 8.55% 
  • Age: No limit 
  • Investment Duration: Varies
  • Investment amount: No-limit   
  • Taxation: Tax on Interest earned and capital gain (if any)
  • Purpose: Regular income and those who fall in lower tax brackets

Senior Citizens’ Savings Scheme (SCSS)

This scheme is for senior citizens above the age group of 60 years. It is a viable option for early retirees or retirees between 55 and 60 years. The money needs to be invested within a month of receiving retirement benefits. The scheme is open for Retired defense employees with a minimum age of 50 years. This scheme is not available for NRIs and HUFs.

  • Interest: 8.3% 
  • Investment Duration: 5 years and extendible
  • Age: Minimum 60 years (55 for early retirees)
  • Investment amount: Rs. 15 lakh or the retirement amount (whichever is less)
  • Taxation: U/S 80C, the interest is taxable
  • Purpose: Generate regular income for senior citizens who fall under lower tax brackets
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Sukanya Samriddhi Yojana

Government of India launched the Sukanya Samriddhi Yojana (SSY) as a part of the “Beti Bachao – Beti Padhao” initiative, which is a small savings scheme for the girl child. In this scheme, a legal guardian or parent can open an account in the name of a girl child (up to two girl children or three if twins). The idea is to encourage the guardians or parents to build a corpus for their education or marriage.

  • Interest Rate: 8.1%
  • Minimum Deposit: Rs. 1000
  • Investment Duration: Deposit till the age of 14 years; maturity age is 21 years
  • Age: 10 years or less
  • Investment amount: Up to Rs. 1.5 lakh per year
  • Taxation: Up to 1.5 lakh u/s 80C; interest is tax free
  • Useful for: Secured future and wealth accumulation for a girl child

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

This is a pension scheme that does not offer tax benefits* and is launched by the Life Insurance Corporation of India (LIC).

This scheme is beneficial for senior citizens who have crossed the benchmark of 60 years. You can invest up to a maximum of Rs. 15 lakh under the scheme. For a period of 10 years, you can opt for a minimum pension amount of Rs. 1,000 and a maximum of Rs. 10,000 on a monthly basis ( as per your invested amount).

Premature exits are permissible during the policy term in special cases requiring medical treatment of self or spouse.

  • Interest Rate: 8% (this is the pension rate)
  • Age Criteria: Above 60 years
  • Investment Duration: 10 years
  • Taxation: No 80C benefit; pension also taxable
  • Purpose: Regular income for senior citizens who fall under the lower tax brackets

Public Provident Fund (PPF)

A PPF account can be opened in any of the public sector or private sector banks who are offering it. You can also open a PPF account with a Post Office.

  • Interest: 8% compounded annually
  • Investment Tenure: Minimum15 years; extendable in blocks of 5 years
  • Age: No Bar
  • Investment Limit: Minimum is Rs. 500 and a maximum of Rs 1.5 lakh per year
  • Taxation: U/s 80C and the interest is tax-free
  • Purpose: Long-term wealth accumulation with low-risk involved

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

Things to Consider While Investing in Fixed Income Schemes

  • Safeties, Liquidity & Return- Always invest in debt products, considering the Safety, Liquidity and Return factor need to be assessed while investing in any of the schemes.
  • Returns- Listed bonds offer returns including capital gains plus the interest received. But for most of the debt products, only the return is the coupon rate.
  • Liquidity- Liquidity is good but it cuts in both ways. Long-term investment products like PPF, and EPF, offer less liquidity to limit the spending.

In a Nutshell

Investing in Fixed deposits is good from the perspectives of maintaining liquidity, offering conservative returns, and keeping the amount secured. However, the above-listed fixed income schemes offer tax-efficiency and help you create wealth efficiently.

Written By: PolicyBazaar - Updated: 30 November 2022
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