6 Fixed Deposit (FD) Alternative Investments in India

6 Fixed Deposit (FD) Alternative Investments in India

6 Fixed Deposit (FD) Alternative Investments in India
6 Fixed Deposit (FD) Alternative Investments in India
Are you looking for some better investment options than a Bank FD? In this article, we are about to discuss six investment options that can grow your hard-earned money significantly. Bank FDs are known for their popularity in India. But is popularity is everything? A thumb rule of any investment is the inflation and tax-adjusted return should not be negative.

Bank fixed deposit (FD) is known as the most popular saving scheme in India. Capital protection and fixed interest rates are the two main factors that make FDs a popular saving option for those who prefer low-risk income-oriented investments. A few years back, this debt instrument was able to produce a pretty decent return. But now the scenario is changed completely. The rates of 5-year FD have taken down to below 6 percent. The current situation of an FD is, it can no longer beat inflation. If somehow it beats the inflation, the post-return tax eats your profit. So nowadays, you have a situation like no gain and no loss with bank FDs. But the question "Is there any option to invest as an alternative to a fixed deposit?". Well, the answer is certainly 'Yes' if you have a long-term perspective for your future investments. Let us discuss some of the investment options that have the potential to grow your money better than bank FDs.

#1. Government and PSU Bonds

Government Bonds are a kind of debt instrument issued by the Government, including Central and State governments. At the time of liquidity crisis for new projects, especially during the budget session, the Govt raises money by issuing securities in auctions. Earlier, only institutional investors link Banks, MF House, etc. were allowed to bid for such bonds or securities. But as per the new RBI 'retail direct' rule, a retail investor having a Demat can now be a participant in buying G-secs directly. If you don't have a Demat account, you can invest in such mutual funds that invest primarily in G-secs, T-bills, etc. 

Gilt Funds - Features, Risk and Returns | Top Performing Gilt Funds

Taxability and Variations

Bonds can have various types like Fixed-Rate Bonds, Floating Rate Bonds, Zero Interest-rate Bonds, Inflation-Linked Bonds, including short-term and long-term maturity options. Investment for a long-term horizon (Minimum 5-years), these bonds can generate better returns than traditional bank FDs. Although, capital gain from such bonds is taxable. Short-Term Capital Gain (STCG) tax is applicable based on an income-tax slab in case of redemption before the completion of 3-years. Otherwise, if you hold it for more than 3-years, during the maturity or withdrawal, 20% of Long-Term Capital Gain (LTCG) tax with indexation benefit will apply.

  • Verity of options
  • The growing potential is higher
  • Low credit risk
  • The facility of trading in the secondary market
  • Loan against securities


G-Secs are raised by Governments (Including State Governments), so the credit risk associated with such bonds is almost negligible. However, there is a certain risk involved with such debt securities called 'Interest-Rate Risk'. Unlike a bank FD, the interest rates of bonds are not fixed at all. The relation between the interest rate and the bond rate is opposite. Appearing a new bond with a higher return can negatively impact existing bond prices. Additionally, during the bool run in the stock market, the value of these bonds can depreciate. So, buying Gov-bonds during the recession or market under long consolidation can be beneficial. 

#2. Post Office Time-Deposit (TD)

Post Office Time-Deposit (TD) is another risk-free saving option for risk-averse investors, those who are looking for a better return than bank FDs. The classic saving instrument comes with multiple maturity options from 1 to 5 years. So far, the interest rate on a 5-year post-office TD is about 6.7% (compounds quarterly), which is significantly higher than the bank's 5-year fixed deposits. In this deposit scheme, you are eligible for a tax exemption of upto 1.5 lakh during the investment year under income tax section 80C. However, return from a Time-Deposit is taxable and applicable according to the saver's income-tax slab.

  • Offers comparatively better interest-rate
  • Allows exit before the maturity
  • 80c is tax relief is available

#3. Corporate FD

Corporate FDs are also like regular fixed deposits offered by Financial and Non-Banking financial companies (NBFCs) like Mahindra Finance Ltd, Bajaj Finance Ltd, etc. These private companies raise capital with their wide range Fixed-Deposits with lucrative fixed interest rates. However, this savings option is not as secure as regular bank FDs. However, AAA-rated companies are less likely to default. It is a good practice to check credit rating before investing in an FD of a company.  Credit rating agencies such as Crisil, ICRA, and CAR determine ratings after evaluating a company's business and cash flow. 'AAA' rated company means the company is stable and good in business fundamentals. Here is a list of popular corporate FDs in India:

Company Name Interest Rate* (As of March 2021) Tenures
ICICI Home Finance FD 4.30% - 6.25% 1 to 5 years
HDFC Limited 5.70% - 6.20% 1 to 5 years
Bajaj Finance Ltd 6.15% - 7.00% 1 to 5 Years
Shriram Transport  7.50% - 8.40% 1 to 5 Years
Mahindra Finance 5.70% – 6.45% 1 to 5 Years
  • Offers attractive interest rates
  • Flexible Tenure
  • Additional Benefits for Senior Citizens

#4. Debt Mutual Fund

Debt Mutual funds are considered low-risk investment instruments as these funds majorly invest in fixed-income security instruments like bonds, debentures, Government securities, T-bills, etc. You can expect a slightly better return than bank FDs in Debt funds if you hold it for a long period. Although, there are plenty of options for short to long-term investments. Here are few popular types of Debt funds:

  • Liquid Fund
  • Gilt Fund
  • Ultra-Short Duration Fund
  • Short Duration Fund 
  • Medium Duration Fund
  • Long Duration Fund
  • Banking and PSU Fund

You can choose any fund according to your investment horizon. One of the great benefits of having a mutual fund is that you never feel a liquidity crisis. You are allowed to redeem anytime whenever you want, considering you have invested in an open-ended fund. The redemption from a debt fund takes one or two days to credit the amount into your bank account.

  • Offers investment through SIPs and Lumpsum
  • It has the potential to beat inflation
  • Easy to exit and switch

#5. Equity Linked Saving Scheme (ELSS)

If you are not worried about investments into equity segments, an ELSS can be a good option for you. An Equity-Linked Saving Scheme is nothing but an equity mutual fund. The main difference is, you have to hold your investment for at least 3-years. As your funds get invested in equity stocks, it is obvious you can not expect a fixed rate of return from an ELSS fund. However, if you hold your investments for a long period, it can generate a decent amount of returns for you. There are two ways to invest in ELSS funds, either by SIP (Systematic Investment Plan) or by a lump sum.

SIP Calculator

The reason for the popularity of ELSS funds because of its tax benefits. You can claim an income tax deduction of up to 1.5 lakh under section 80c income tax act. Not only that, ELSS qualifies for a flat 10% LTCG (Long-Term Capital Gain) tax that can be beneficial if you fall in a higher income tax bracket. Unlike debt instruments, it consists of credit risks associated with ELSS funds. Here are some popular ELSS funds in India: 

Also, read PPF vs ELSS: Detailed Comparison & Which is Better

ELSS Fund Name 5-Year Return *
Axis Long Term Equity 15.43%
Canara Robeco Equity Taxsaver 17.18% 
DSP Tax Saver Fund 15.91%
Mirae Asset Tax Saver Fund 21.21%
Kotak Tax Saver 15.23%
ICICI Prudential Long Term Equity 13.64%
Motilal Oswal Long Term Equity 15.85%
Nippon India Tax Saver 8.08%
  • Historical returns are pretty attractive
  • 80C Tax Benefit
  • Equity exposure for your investment
  • Applicable 10% LTCG tax profits beyond 1 lakh

#6. National Saving Certificate (NSC)

National Saving Certificate is a Government-issued fixed-interest saving bond. NSC matures in five years, and you are not allowed to exit before maturity. However, you are free to take loans against NSCs. NSC is it is a risk-free saving option that offers a pretty attractive rate of interest. The current interest-rate of NSC (VIII issue) is 6.8% per annum which compounds annually. You can buy NSC directly from any post office branch. There is no upper limit of investments in NSC. However, you can only get a tax exemption of Rs. 1.5 lakh U/S 80c in a financial year.

NSC vs FD : Detailed Comparison - Which is better?

  • A Risk-Free debt investment option
  • Better interest rate than Bank FDs
  • No upper limit in investment
  • 80C Tax Benefit


Each investment option comes with its pros and cons. It is difficult to say which is the best option for investment. It depends on various factors like investment horizon, risk-taking capacity, age of the investor, etc. So, you should select the option according to your risk appetite and investment horizon. I'm not saying that a Fixed Deposit is the worst investment option. Sometimes FDs can also be beneficial for you. But a thumb rule of any investment is the inflation and tax-adjusted return should not be less than your deposited amount. 

Disclaimer: We are not giving any suggestions or recommendations. The purpose of writing this article to elaborate and simplify financial schemes. The investment-scheme may be outdated when you are reading this. So, the accuracy of the information is not guaranteed. Always read the latest scheme information before investing.
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