A well-made investment can become the currency of the future. In this hectic lifestyle, the cost of living is rising at a rapid rate, and one must meticulously plan savings in such a way that it delivers satisfactory returns while preserving the capital.
Even for those who don’t understand the complexities of finance, there are multiple low risk investment options available. By investing your money wisely, you can expect decent capital appreciation while protecting yourself from market fluctuations.
Why do investors favour low risk investment options?
Low risk investment options are the best bet for someone who doesn’t want to deal with unpredictable market fluctuations or wants safety and stability after the global pandemic. By investing in these investments, you can securely diversify your portfolio.
1. Public Provident Fund (PPF)
PPF is one of the low risk investment options available to Indians. PPF is a government-backed savings scheme that ensures savings while providing tax relief. The current PPF interest rate is 7.1% and is compounded annually. As a PPF falls under EEE status, the amount invested, interest earned, and maturity amount are all tax-free. Also, PPF investments are tax-deductible under Section 80C up to ₹1.5 lakhs per year.
2. National Savings Certificate (NSC)
NSCs are saving bonds offered by India Post. NSC also qualifies for Section 80C deduction and offers 6.8% interest compounded annually. Though NSC has no maximum investment limit, only investments of ₹1.5 lakhs per year qualify for a tax deduction. NSC, too, provides guaranteed returns and total capital protection. However, the maturity amount is taxable. Because there is no Tax Deduction at Source (TDS) on NSC, the taxpayer must pay income tax on the maturity amount.
3. Voluntary Provident Fund (VPF)
VPF is perfect for those with a low-risk appetite. Earlier, the scheme was in the EEE category, but in Budget 2021, the government proposed taxing the interest earned on employees’ contributions above ₹2.5 lakhs. Although considering the interest rate of 8.5% offered by VPF, even after-tax returns amount to 5.95%, which is still higher than traditional bank fixed deposits. However, note that employers are under no obligation to contribute to the plan. Also, once the plan is chosen, it cannot be discontinued or terminated before the 5-year base tenure is completed.
4. Liquid Funds
Liquid funds are one of the viable low risk investment options. These are a type of mutual funds that invest in securities with 91-day residual maturity. Typically, liquid funds invest in low-risk money market securities like Treasury Bills, Certificates of Deposit, and Commercial Papers. Liquid funds have delivered better returns than savings accounts and, in some cases, fixed deposits. Its 10-year return ranges between 6.41% and 7.25%. As the name suggests, you can park your money for a few days to a few months. Indexation benefits are available for Long Term Capital Gains (LTCG), while short-term gains are taxed according to the individual’s tax slab.
Gold has been an all-time favourite of investors and is a globally recognised standard. It is relatively unaffected by market shocks and acts as an inflation hedge. Gold mutual funds can be a great way to start investing in gold. Gold fund CAGRs range from 11.4% to 12.8% over three years. Given the uncertainty surrounding the pandemic, it is wise to invest in gold funds.
If money is invested in the right way and in the right place, it is possible to earn good returns. You can build wealth and achieve your financial goals even with low risk investment options. However, consult with a good financial advisor before making any hasty decisions.
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