Looking for a better return than traditional fixed deposits (FDs)? FDS offers safety and guaranteed returns, but interest rates cannot beat inflation. This makes it essential to explore alternatives that can provide higher returns while effectively managing risk. Many Indian investors park most of their savings on FDs and other traditional instruments. However, if you want to maximize wealth while controlling for risk, it is important to explore other fixed income and growth options. This article discusses the 10 best alternatives for FDS classified based on risk appetite. Whether you’re a conservative investor or are willing to take medium to high risks for a better return, this guide will help you make informed decisions.
Top 10 Best Alternatives for Fixed Deposits [Safe, Moderate & High-Risk Options]
Low-risk alternative to FDS
#1 – Small financial bank savings account
Small financial banks offer savings accounts with interest rates of 7%, offering a great combination of security and liquidity.
Pro:
- Higher interest rates than traditional savings accounts
- Full liquidity without lock-in period
- Insured deposits of up to £5 under DICGC
▽ Cons:
- Interest rates may change
- Some banks need to have a high minimum balance
- Inflation can erode actual returns
#2 – Post Office Savings Scheme
Government-supported post office schemes such as the NSC and PPF provide stable returns along with tax benefits.
Pro:
- Guaranteed returns from sovereign backing
- Tax benefits under Section 80C (for PPF, NSC)
- Perfect for conservative investors
▽ Cons:
- Long lock-in periods make it limited liquidity
- Interest rates are revised periodically
- Some schemes do not beat inflation in the long run
#3 – Government Bonds and RBI Bonds
Government bonds offer safe investment options with predictable returns and are a safe alternative to FDS.
Pro:
- Supported by the government
- In many cases, interest rates are higher than FD
- Some bonds offer tax benefits
▽ Cons:
- Longer lock-in period
- Interest rate risk for long-term bonds
- Liquidity can be a problem
FDS Medium Risk Alternative
#4 – Corporate fixed deposits
Corporate FDs offer better interest rates than traditional bank FDs, but are slightly more risky.
Pro:
- Higher interest rates (up to 9%)
- Flexible Tenure Options
- Some rated company FDs are relatively safe
▽ Cons:
- There is no insurance protection like bank FD
- Credit risks related to the company’s financial health
- It’s not always better than inflation
#5 – Fixed Deposit + Stock Mutual Fund Combo
A balanced approach that keeps the principal safe with FD, and the interest earned will be invested in equity mutual funds.
Pro:
- Capital is safe in FD
- Higher returns allow for exposure to the stock market
- Helps fight inflation
▽ Cons:
- Stock investments are subject to market risk
- Disciplined investment is required for the best results
- Not ideal for those looking for immediate returns
High-risk alternatives for FDS
#6 – Peer-to-peer (P2P) loan
The P2P lending platform allows investors to lend money to borrowers at higher interest rates.
Pro:
- Returns range from 10-15%
- Diversification of multiple borrowers
- Possibility of passive income
▽ Cons:
- Credit Risk – Borrow Years may default
- Not as strictly regulated as banks
- Proactive investment monitoring is required
#7 – High dividend stocks
Investing in established companies with a history of paying high dividends can create a stable flow of income.
Pro:
- Normal income from dividends
- Possibility of capital rise
- Blue chip stock provides stability
▽ Cons:
- Stock market fluctuations affect stock prices
- Dividends are not guaranteed
- Knowledge of stock selection is required
#8 – Gold Investment
Gold is always a reliable hedge against inflation and economic uncertainty.
Pro:
- Multiple investment options (physical gold, ETF, sovereign gold bonds)
- Hedge against inflation
- High fluidity
▽ Cons:
- There is no passive income
- Physical gold storage and safety concerns
- Gold prices can be unstable
#9 – pension
Pensions provide guaranteed normal income and are a preferred option for retirees.
Pro:
- Guaranteed payment for life or fixed holding period
- Low risk investment
- Perfect for retirement planning
▽ Cons:
- Funds are locked in low liquidity
- Returns may not beat inflation
- High rates and fees may apply
#10 – Systematic mutual fund withdrawal plan (SWP)
The SWP allows investors to withdraw fixed amounts regularly from mutual fund investments, providing a tax-efficient alternative to FD interest.
Pro:
- It has a higher tax effect than FD interest
- Helps to generate inflation beating returns
- Customizable Drawer Frequency
▽ Cons:
- Market fluctuations affect returns
- You need to choose your funds carefully
- Not suitable for super conservative investors
Conclusion: Choosing the right alternative to FDS depends on your financial goals and risk appetite. If you prefer safety, a government bond and post office scheme is ideal. Those looking for higher returns, corporate FDs, equity mutual funds, and SWP strategies offer better growth potential while reducing risk.
Diversifying your investments and choosing the right combination will help you achieve better returns than traditional FDs while effectively managing risk.
What alternative to fds? Share your thoughts in the comments below!
FAQ
Is FD safe for companies? Corporate FDs are more risky than bank FDs because they don’t have insurance. Choosing a highly rated issuer will help you minimize your risk.
Which is the safest alternative to FD? Government-backed investments such as RBI bonds, PPFs and post office schemes are one of the safest alternatives.
Can I earn monthly income from FDS alternatives? Yes, options like mutual fund SWP, pensions and high dividend stocks can provide normal income.
How do I choose the right investment option? Before making a decision, consider factors such as risk appetite, liquidity needs, tax benefits, and expected returns.
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