Best Fixed Income Investments for less than 5 years

The difficulty in finding a suitable fixed income product has increased ever since key interest rates were lowered by the Reserve Bank of India. Except for high yield options available only to senior citizens and minor daughters, there are very few products offering nearly 8% return per annum. 

Ideally then, we decided to search and compile a list of various fixed income products offering high interest rate. We have considered the maximum investment term for the product as five years, and excluded products available only to specific age groups. Also, the deposit amount required for investment is less than 2 crores. Here are the options:

Post office and Government Sponsored Schemes

Most government schemes tend to be long term, of more than five years. The returns, too, are fixed and low for investing for such a long period. Among the few short-term options, the returns barely touched 8%. However, these deposits come with a sovereign guarantee, which makes them safe from credit risk. If you want utmost capital safety then the options below are suitable for investing.

The striking feature here is that the five-year deposit interest rates here are higher than offered by quasi-sovereign public sector banks. This makes the options below suitable for investing for a period of five years.

Public Sector Banks

This is the second best option for the ultra-conservative investor. The rates offered by public sector banks rarely ever touch 7%, and are amongst the lowest in the industry. 

Private Banks

Private bank fixed deposit returns have hovered between 7% and 8%, depending on the banks reputation and capital needs. While the top players like HDFC Bank, ICICI Bank offer less than 7.30% interest, the emerging players are offering better rates to attract investors. The newly merged entity IDFC First is offering 8.50% on a 2 year deposit, highest among its peers.

Small Finance Banks (SFBs)

This new category of banks was licensed by RBI a few years back, to cater to the underserved and unserved population. The bank operations will be regulated by the RBI, and also offer deposit insurance of Rs1 lakh, similar to other banks. Compared to fixed deposits at private corporations, SFBs are a better choice, simply due to the better regulations in place for these institutions.

The interest rate offered by SFBs is also higher than corporate deposits. There are 10 SFBs licensed so far by RBI and we have given the highest interest rates offered by each.

Corporate Fixed Deposits

I will not recommend this as , recent DHFL and IIFL problem ruined hard earned money of many retail investors.

Discalimer :

The writing has been inspired by moneylife magazine but i removed corporate fixed deposit here as its very risky.