7 Investment Options If You Only Invest in Fixed Deposits

calendarJune 6, 2024
7 Investment Options If You Only Invest in Fixed Deposits

Let's be honest: Fixed deposits have always been a go-to investment option for a lot of people. The safety and the guaranteed returns of Fixed deposits have always encouraged people, whether they are young or old, to invest in Fixed deposits. However, as life progresses and our financial goals evolve, it is important for us to understand that fixed deposits might not be the best option for you to invest your money if you actually want to grow your money. The return on fixed deposits is very low compared to other investment options. The returns certainly would not benefit your pocket when you account for them with the growing inflation.

It is time for you to break from the traditional mindset of fixed deposit investments. Therefore, we should explore and understand some fixed deposit alternatives that would be bang for your buck. These investment options would not only be safe, like fixed deposits, but would also give you much higher returns. But first, let's understand why fixed deposits are not the best option nowadays.

Time to move on from fixed deposits?

Fixed deposits have been a safe and secure option to invest your money. However, the problem with them is that they have a very low rate of interest compared to other investments. They often fail to keep pace with the inflation rates. According to Indian budget reports, the inflation rates in India for the past decades have been looming in at around 5-6%. In contrast, interest rates offered by banks on fixed deposits rarely exceed the 7% mark. This means that the real return on your investment is actually very low if we account for the rising inflation.

Additionally, solely relying on fixed deposits for your investment is not a smart option. It is always beneficial to have a portfolio with varied investments. This way, you would not miss out on other potential wealth creation investment options, which offer a proportionately high return for the risk that you take, particularly over longer time horizons. Let's explore some investment alternatives other than fixed deposits.

Safe Investment Alternatives with Better Returns

  1. Debt Mutual Funds

Debt Mutual Funds are like a basket of loans. They invest in a diversified portfolio of fixed-income instruments, such as government bonds, corporate debentures, and money market instruments like commercial papers and certificates of deposit. These funds are managed by a fund manager who invests your money in varied instruments. These funds offer higher returns than traditional fixed deposits while also keeping the risk at a low level. These funds adjust the rates as per the market rates, unlike fixed deposits, where the money is locked in at one single rate. Usually, you can withdraw your money any time you want without paying a penalty.

Debt mutual fund rates vary depending on the duration for which you invest your money. Short-term Debt Mutual funds usually give a return of 7.5 to 7.7%, while long-term funds give a return of 5-8% per annum, depending on the fund.

  1. Equity Mutual Funds

As explained above, like debt mutual funds, equity mutual funds also allow you to invest your money in a diversified portfolio of instruments. However, unlike debt mutual funds, they focus on equity instruments and invest in stocks and shares of companies. These funds generate a very high interest rate if you invest in them for a long period of time.

Unlike fixed deposits, which are like putting your money in a safe with a fixed interest rate, equity funds have the potential to grow much more because they’re invested in the stock market. Yes, the market can be a roller coaster with ups and downs, but over the long term, it tends to go up. So, if you have a high-risk appetite, equity mutual funds are certainly an option you can choose from. The money is invested strategically in varied stocks and hence is much safer than directly investing in the stock market.

  1. Recurring deposits

Recurring deposits are similar to fixed deposits in terms of their safety and guaranteed returns. However, they offer the flexibility of investing smaller amounts at regular intervals. These deposits are offered by banks. Each month, you put in a little money, and it earns interest, just like a fixed deposit. However, the benefit of recurring deposits is that they are very flexible. You don’t need a lump sum to start and can start your investments with a very small amount. Over time, these small investment savings can add up to a significant amount. Plus, Recurring deposits often offer higher interest rates than savings accounts, making your money work harder for you.

  1. Senior Citizen Savings Scheme

The Senior Citizens Saving Scheme (SCSS) is a safe and high-return investment option for those in their golden years. The SCSS scheme gives a steady and fixed return on investment. It promises a fixed return on investment of 8.2%, paid quarterly, which often beats the rates of fixed deposits. It's tailor-made for folks over 60, offering a safe haven for their savings with the backing of the government. The charm of SCSS lies in its flexibility; you can start with a 5-year term and extend for three more, giving you an opportunity to continue earning a fixed return on your investments for an extended period. While the interest from SCSS is taxable, senior citizens can claim tax deductions on their investments. It's a smart option for those seeking peace of mind and a reliable payout in their retirement years.

  1. Post Office Monthly Income Scheme

The Post Office Monthly Income Scheme (POMIS) offers senior citizens in India a secure and beneficial option for generating a consistent monthly income. With an attractive interest rate of 7.4% per annum, POMIS stands out as a superior alternative to fixed deposits, particularly for those seeking regular income to manage everyday expenses. Like Fixed deposits, this scheme is very safe and secure as it is supported by the Indian government. This means you could invest your money while ensuring a high level of security for the invested capital. Investors can commence their journey with POMIS with a minimal amount of Rs 1500, and the scheme provides the flexibility to withdraw funds after one year, catering to unforeseen financial needs. This combination of safety, reliability, and accessibility positions POMIS as an advantageous choice for anyone seeking financial stability and an option to generate some extra income.

  1. National Savings Certificate

A National Saving Certificate is another attractive alternative Fixed deposit investment option. National Saving certificates are backed by the government of India. These offer a higher interest rate compared to bank fixed deposits, making them an appealing choice for seeking better returns and a high level of safety. The current rate of the National Saving Certificate offers a much higher interest rate of 7.7% per annum, as compared to the traditional fixed deposit option. The interest earned on these certificates is also covered under Income tax benefits. National Saving Certificates have a maturity period of 5 years and cannot be withdrawn prematurely. With their sovereign backing, competitive interest rates, and tax benefits, National Savings Certificates present a viable alternative to fixed deposits, offering investors the potential for higher returns while maintaining a low-risk profile.

  1. Public Provident Fund

Public Provident Fund is a safe and secure investment option for growing your money. It is a long-term savings plan offered by the government of India. It has a unique combination of tax benefits, long-term growth potential, and a high degree of safety. Like Fixed deposits, the Public Provident Fund is also very secure but offers a higher rate of return. It offers an interest rate of 7.1% per annum. While it may seem that the rate of return is not very high compared to other investment options, the real strength of this fund lies in the tax benefits that are available under the Income Tax Act.


Fixed deposits have always been a safe and secure option for investing your money. However, solely relying on them as your investment option might not be very beneficial if we account for the growing inflation rates. By exploring other alternatives to Fixed Deposits, you can earn a much higher rate of interest while also keeping your money safe and secure. As an investor, you should always remember that diversification is key to managing risk and maximising returns.