If you are a risk-averse investor, then your investment options are narrowed down. You give up on the potential to earn inflation and benchmark-beating returns. However, you get the much-needed safety and earn assured returns over time. Most senior citizens are risk-averse investors as they don’t have the ability to bear any risk and are ready to compromise on returns in exchange for safety.
Here are five investment options for risk-averse investors:
1) Public Provident Fund
Public Provident Fund or PPF, is offered by the central government and is backed by sovereign guarantees. Hence, investments made in PPF are considered safe. You are entitled to claim tax deductions of up to Rs 1,50,000 a year under the Section 80C provisions. The minimum and maximum yearly contributions are Rs 500 and Rs 1,50,000, respectively. The interest provided scheme is revised every quarter. PPF is currently returning 7.1% a year. PPF comes with a lock-in period of fifteen years. You can make premature withdrawals after the fifth year, on meeting certain conditions.
2) Bank Fixed Deposits
Bank fixed deposits (FDs) allow you to invest a lump sum for a fixed tenure and earn assured returns. You can invest in FDs with most banks. However, it is advisable to stick to public sector banks or well-established private sector banks considering you are risk-averse. You may also consider investing in corporate deposits. You can rely on CRISIL ratings for choosing the safe ones. The interest on FDs is revised based on the outcome of the Reserve Bank of India’s bi-monthly monetary policy rate review.
3) Recurring Deposit
If you don’t have a lump sum to invest in a fixed deposit, then you can invest a small amount every month in a recurring deposit (RD). These deposits come with a predefined tenure and offer guaranteed returns at a particular interest rate. In fact, most banks provide the same rate of interest on FDs and RDs. The benefit of investing in an RD is that you get the flexibility to stagger your investment. The interest rate on RDs is revised regularly, depending on the monetary policy review.
4) National Savings Certificate
National Savings Certificate or NSC, is a safe investment option as the sovereign guarantees back the scheme. You can invest in NSC with any post office in India. You are entitled to tax deductions of up to Rs 1.5 lakh a year under the Section 80C provisions. The investment made in this scheme is locked-in for five years and offers assured returns. It is currently returning 6.8% a year and is revised every quarter by the government. The maximum investment allowed is Rs 1.5 lakh a year in NSC.
5) Liquid and Overnight Funds
Liquid funds are a class of debt funds that invest in high-rated fixed-income securities such as treasury bills, corporate bonds, and so on, that mature within a period of 91 days. Investments made in liquid funds are safe as the underlying securities mature in a short period of time.
Overnight funds are debt funds whose asset allocation is made towards overnight securities that mature within one day. The ultra-short maturity duration of these funds makes them a secure investment option. Both liquid and overnight funds are open-ended mutual funds and have the potential to offer much higher returns than bank deposits.
These are some of the best investment options for risk-averse investors. You have to assess your requirements and investment horizon before choosing to invest in any.
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Engineer by qualification, financial writer by choice. I am always open to learning new things.