A debt fund invests in fixed income and interest-generating instruments/securities including government securities, corporate bonds, treasury bills and other money market instruments. The debt funds make investments towards the securities based on their respective credit ratings. The primary target for debt fund investment is to generate a steady source of income along with capital appreciation. Successful results from this sort of investment results with the fund manager.
But there are several other investment tools too apart from debt funds that offer guaranteed returns. But the thing must be kept in mind before investing that not all investments solely focus on returns. The ideal target for investment should be downside protection, stability, liquidity and safety. These are some of such investment tools that generate regular returns and income:
- Public Provident Fund (PPF)
This is considered to be one of the safest investment tools as it involves minimal market risk. The investment is entirely secured with a sovereign guarantee. The maturity period is 15 years which is further expandable up to 5 more years. Premature withdrawal is permissible only after the initial lock-in period of 5 years has elapsed. Only one can be opened per individual. PPF contribution is eligible for tax deduction under Section 80C of the ITA. The current interest rate is 7.1% p.a. as on 1-April 2020. A minimum yearly investment of INR 500 is sufficient to maintain the account.
- Bank Fixed Deposits (FDs)
Bank FDs are the ideal investment solution for risk-averse investors. The government insures up to INR 5 lakh of bank deposits per individual. These schemes involve all sorts of bank deposits including fixed savings as well as recurring deposits with an insured bank. The deposit insurance scheme offers all the operational banks of the country in both the public as well as the private sector along with co-operatives and foreign banks operating in India. The rate of interest varies from institution to institution and the standard policy is to offer a slightly higher rate of interest for the senior citizens.
- Senior Citizens Savings Scheme (SCSS)
Any individual of above 60 years of age can avail the benefit of holding this account. The current rate of interest in this scheme is 7.4% p.a. SCSS allows no investment above INR 15 lakh per account. The individual is allowed to operate multiple accounts singularly or jointly with the spouse. The maturity period is 5 years. On maturity, the investment can be extended further up to 3 more years. The quarterly interest payouts are payable on the first working day of April, July, October and January.
- Post Office National Savings Monthly Income Account (POMIS)
This is a 5-year investment planning with a minimum of INR 4.5 lakh singularly or INR 9 lakh under joint ownership. The current rate of interest is 6.6% p.a. with monthly payout. The maturity tenure is 5 years.
- Sukanya Smariddhi Yojana
This is a government initiative specially crafted for securing the girl child. From the birth of the girl child, this account can be opened up to 10 years of age. The current rate of interest is 7.6% p.a., yearly compounded. Deposit is permissible up to 15 years from the opening of the account. Once the girl is 18 years, partial withdrawal is permissible. After 21 years of age, it can be closed. This investment is eligible for tax deduction up to INR 1.5 lakh under Section 80C of the ITA. The interest earned and maturity are tax-free.
- National Savings Certificates (NSC)
This is also a popular investment tool for diversification of the fixed income portfolio. The current rate of interest is 6.8% p.a. which is annually compounded but payable at maturity. The deposits qualify for tax benefits under Section 80C of the ITA. These certificates can be purchased on behalf of a minor above 10 years of age. The interest acquired for the first four years gets reinvested, but starting from the fifth year, the interest earned is taxable based on the respective tax slab rate.
Benefits of Guaranteed Returns Plans Vs Debt Funds
| Criteria | Traditional Guaranteed Returns | Debt Funds |
|---|---|---|
| Objective | Helps in faster money acquiring, securing the financial future of the investor along with his/her family. | Solely done for the investment purpose for creating a healthy wealth corpus in the long-term. |
| Returns | Depends on the choice of the investment | Extremely volatile and dependable on the overall market performance. |
| Tax benefits | Applicable under section 80C and Section 10(10D) of the ITA. | Held for over 3 years are taxed at 20% rate with indexation and are classified under long-term capital gain. |
| Flexibility | Low | High |
| Security | High, offering guaranteed fixed returns | Low, and does not offer guaranteed fixed returns |
| Comparison | Best in terms of guaranteed returns and financial security. | Best only in respect of investment. Although promises high returns, the returns are entirely dependent on the market performance of the respective fund(s) chosen. |
So, now that you know all the similar products, you can compare the same as against debt mutual funds and then choose the one which best suits your needs.