Striking the right balance between risk and return is key to building a profitable investment portfolio. For those who want to protect their money while still earning decent returns, low-risk investments offer a reliable solution. These options are especially attractive to cautious investors, retirees, or anyone who values reliability over taking big risks.
With so many choices available, picking the right investment can feel overwhelming. But by focusing on proven low-risk investments in India, you can enjoy peace of mind and steady growth. Let’s look at five top low-risk investments that offer both reliability and better returns.
1. Fixed Deposits (FDs)
Fixed deposits, commonly known as FDs, are among the most popular low-risk, high-return investments. Offered by financial institutions, FDs allow you to deposit a lump sum amount for a fixed tenure at a predetermined interest rate.
Why Choose FDs?
- Predictable Returns: The interest rate is locked in at the time of investment, ensuring predictable returns regardless of market conditions.
- Reliable: FDs are considered more reliable than other market-linked investments as reputable financial institutions back them.
- Flexible Tenures: Investors can choose tenures, often ranging from a few months to several years.
- Reinvestment Option: Many investors prefer to reinvest the principal and interest, allowing the power of compounding to enhance returns.
Returns: The interest rates on FDs vary, depending on the financial institution and the tenure. Senior citizens often benefit from an additional interest rate, making FDs even more attractive for retirees seeking a steady income.
Example: If you invest ₹10 lakhs in an FD for a tenure of 5 years at an interest rate of 6.5%, you can expect a maturity amount of approximately ₹13.8 lakhs, ensuring your principal grows with minimal risk. You can also use an FD Calculator, input the required values, and get an idea of the exact amounts.
2. Public Provident Fund (PPF)
PPF is a long-term savings plan supported by the Government of India. It is a great option for people who want to save for retirement while also getting tax benefits.
Why Choose PPF?
- Secure Investment: Being government-backed, the PPF is one of the safest investment options available.
- Compounding Power: With a tenure of 15 years, PPF allows the power of compounding to work in favour of the investor over the long term.
- Partial Withdrawals and Loans: While the PPF account is locked in for 15 years, partial withdrawals are allowed after the 6th year. Additionally, investors can avail of loans against their PPF balance from the 3rd to the 6th year.
Returns: The current PPF interest rate is around 7.1% per annum, which is reviewed quarterly by the government. The compounding nature of PPF means that the longer you stay invested, the greater your returns.
Example: If you invest ₹1.5 lakhs annually for 15 years at an average interest rate of 7.1%, your total investment of ₹22.5 lakhs could grow to approximately ₹40 lakh, thanks to the power of compounding.
3. Gold Investments
Gold has been a symbol of wealth and a dependable investment for centuries. Its intrinsic value and ability to act as a hedge against inflation make it an attractive low-risk investments in India.
Why Choose Gold?
- Hedge Against Inflation: Gold’s value tends to increase during economic downturns, providing stability when other asset classes may falter.
- Versatile Investment Forms: Investors can purchase physical gold in the form of coins, bars, and jewellery or choose digital options such as gold ETFs (Exchange-Traded Funds) and sovereign gold bonds (SGBs). The latter is a government-backed scheme that offers additional interest over and above the gold value.
- Liquidity: Gold is a highly liquid asset, making it easy to convert into cash when needed.
Returns: Gold’s returns can fluctuate, but it has historically provided positive annual returns over the long term. During economic uncertainties, the value of gold can surge, offering excellent protection for your portfolio, making it one of the low-risk investment option in India.
Example: If you had invested in 24-karat gold five years ago when the price was around ₹3,500 per gram, today’s value at ₹7,100 per gram would reflect substantial growth, showcasing the metal’s appreciation potential.
4. National Pension System (NPS)
The National Pension System (NPS) is a government-sponsored low investment high return scheme designed to provide financial security in your post-retirement years. It is particularly suitable for individuals looking for a mix of low-risk investments with moderate exposure to market-linked instruments.
Why Choose NPS?
- Flexibility: Investors can choose between different asset classes - equity (E), corporate bonds (C), and government securities (G) - to align with their risk appetite. Tier I and Tier II accounts offer different levels of liquidity and flexibility.
- Partial Withdrawals: Partial withdrawals are permitted for specific purposes, such as education, home purchase, or medical expenses, after a certain number of years.
Returns: NPS returns vary based on the allocation of funds between asset classes. Historically, it has provided annualised returns ranging from 9% to 12% when balanced with equity exposure.
Example: Say, for instance, if you contribute ₹10,000 every month starting from 33 years of age, your total investment could grow up to ₹1,36,75,139 at the time of your retirement, thus ensuring a secure retirement fund. To get a better idea of the final maturity amounts and interest earned, it is always better to use an NPS Calculator.
5. National Savings Certificate (NSC)
The National Savings Certificate (NSC) is a fixed-income investment scheme offered by the Indian Post Office, aimed at small to medium investors who seek low-risk investment options.
Why Choose NSC?
- Guaranteed Returns: NSC provides assured returns at a fixed interest rate, making it an appealing option for risk-averse investors.
- Ease of Investment: You can buy NSC at any post office with a minimum investment of just ₹100.
Returns: The current interest rate on NSC is approximately 8.2% per annum, compounded annually but payable at maturity. The period of investment is normally 5 years.
Example: If you invest ₹1 lakh in NSC for 5 years at 8.2% interest, your investment will grow to around ₹1.48 lakhs at maturity.
Conclusion
Balancing risk and return are crucial for any investor aiming for financial security. The top 5 low risk high return investment options offer a diverse range of choices, each with its unique benefits. By understanding your financial goals and investment horizon, you can select the option that best suits your needs and helps you achieve long-term stability.
FAQs
1. Are mutual funds considered low-risk investments?
Mutual funds vary in risk levels. Debt mutual funds or balanced hybrid funds are considered relatively low-risk compared to equity mutual funds, as they focus on fixed-income securities.
2. What are the tax effects of investing in fixed deposits?
The interest earned on fixed deposits is fully taxable and will be added to your total income. It is taxed based on the income tax rate that applies to you.
3. What are the benefits of investing in gold through Sovereign Gold Bonds (SGBs)?
Investing in gold through Sovereign Gold Bonds (SGBs) provides several benefits. SGBs are government-backed, offering an additional interest rate over the gold value, making them a more lucrative option than physical gold. They also eliminate the need for physical storage and the risk associated with holding physical gold. At maturity, SGBs can be redeemed in cash, providing liquidity.
4. Can I get a loan against my Fixed Deposit?
Yes, many financial institutions allow you to avail of loans on your FD value. This feature ensures you can access funds without breaking your FD prematurely.
5. Are Fixed Deposits suitable for retirement planning?
FDs are ideal for retirees as they provide reliable returns and flexible interest payout options (monthly/quarterly), ensuring a steady income stream during retirement.