Nowadays, everyone knows that in banks, in savings accounts or FDs, you get very low interest. On top of that, there is a significant tax burden. But if we want to invest this money elsewhere and want a low risk level, similar to an FD, where should we invest it? So, these are the four options we'll discuss in this post. Now, let's look at savings bank accounts. If we talk about them, the interest there is so low these days, 2.5%, 3% on the higher side. If our inflation itself is 4-5%, then our returns become quite negative. If we talk about real returns. On the other hand, if we talk about FDs, which we normally get done at our bank. By chance, you fall into the 30% tax bracket, then based on that, your Interest is taxed. If I consider FD interest at 6% and you fall under the 30% slab, then 1.8% is directly deducted due to taxation. You are left with a real return of only 4.2%. So, one thing is clear: keeping money in the bank is not beneficial at all. So, what other options are there?
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| 4 Low Risk Investment Alternatives to Fixed Deposit and Bank Savings |
Tax Saver FDs
Here, our first option is a tax-saver FD. Meaning, we can save some tax with this type of FD. And there are other alternatives like this, such as National Savings Certificates or Post Office schemes. Generally, you'll find some lock-in period in these. For example, a tax-saver FD has a 5-year lock-in period. And what is the tax saved? It's not saved on interest. The interest is taxable. But the amount you have invested If you invested, the amount you invested at the investment stage can be claimed as a tax deduction under Section 80C in the old tax regime. Please note that this 80C deduction we had was under the old tax regime, and it still exists. However, 95% of people are easily opting for the new tax regime at this time because our slab rates have increased significantly there. So, for most people, this is no longer very effective. So, now when we talk about effective options, we are talking about a risk profile that is almost like a bank's or an FD's, the same risk profile. So, neither less nor more. It's not like our money is 100% safe in the bank either. We all know that the insurance in banks, whether it's an FD or any type of deposit, deposits, which are up to a maximum of 5 lakh rupees by the government in a bank. So now, if we want to look for other options with the same risk profile, what could they be?
1. Liquid Funds
Well, the first option we have here is liquid debt funds. What are liquid debt funds? These are our debt mutual funds where money is invested in short-term instruments. It's for less than 91 days. Because the money is invested for such a short period, it is highly liquid. So, the risk profile here is very low. Where does the money that the mutual fund invests go? It invests money in government Treasury Bills. It invests money in commercial papers. There are certificates of deposit. These are highly liquid instruments. The risk profile is quite low. For this reason, it matches the risk profile with FDs. Now, if we talk about liquidity here, it's quite high. Just like you can withdraw money from an FD at the click of a button, you can withdraw money in this case too. The minimum amount here is from ₹500 to ₹1000, depending on which mutual fund you're investing in. There's no limit to the maximum amount. Just like you can put any amount into an FD, you can put it in here too. Taxation is the most important point here. In FDs, whether you're withdrawing money or not, interest will be taxed directly, every year. And when we calculate capital gains too, even though our debt mutual fund counts under the slab rate. Still, when you look at the capital gains calculation, properly. So, our effective tax comes out to be 80 to 90% savings in that. Talking about maturity, there's no lock-in here for investors. You can invest money anytime, and anyway, these are for short-term durations, these funds. They are highly liquid. You can withdraw this money anytime easily. Expected returns are 6 to 7% as of today, we are as you can expect. You're getting slightly better returns here than from an FD. So it's a very good option compared to FDs, but highly tax-efficient.
2. Guild Funds
Let's move on to our next option: Gilt Funds. Gilt funds are also a type of mutual fund, but the risk is lower within them. These are also debt mutual funds. Here too, we're not talking about any equity, we're not talking about the stock market. The requirement is that a minimum of 80% of the money must be invested in government securities, whether it's central, whether it's government bonds or state government bonds. Liquidity here is also high. You can invest money anytime, or withdraw it. The minimum amount is from 500 to 1000. Depending on the AMC, which mutual fund you are investing in. There is no limit on the maximum amount here either. Taxation is also done according to the slab rate. For example, we are talking about liquid funds, which are also a type of debt mutual fund. Gilt funds are also a type of debt mutual fund. They are highly tax-efficient. And what returns can we expect here? We can expect slightly better returns here than from liquid mutual funds as of today. Today, they are running between 6.5 to 7.5% in the market. It depends on what the interest rates are. When interest rates rise, these rates also become a bit better for us.
3. Treasury Bills
Now, let's talk about Treasury Bills. If we talk about them, they are government-backed. What does a Treasury Bill mean? It's issued by our RBI. This is government debt. Meaning, the government is borrowing money from you in the form of a loan. In return, you get interest. Now, you don't get interest directly. How does it work? Understand this. Suppose you are promised ₹100 within the next 6 months. So, today, you will be asked to pay only ₹98. So, that extra ₹2 you will get, you can consider it as your interest or return. So, in this way, it's actually at a discount. So in simple terms, I've explained to you what interest or return you get. Speaking of liquidity, it's quite high. You can easily put money in and take it out here as well, because this is also invested for the short term. And as of today, the RBI has launched a direct website. You can invest directly through the RBI. Earlier, if money was invested in T-bills, it was only through debt mutual funds. Now, the RBI's direct option is also available. You can definitely explore that too. The minimum amount required here is 10,000. If you are going through RBI Direct, then if you are investing through a debt mutual fund, as I told you, the minimum investment there can be even 500 to 1000. There's no limit to the maximum amount here either. Taxation on this is also at slab rates. Look, all the options we're discussing now, fixed income ones, where we get almost fixed returns, there the slab rate is what determines our tax.
Also Read, Gold Investment Guide 2026. How to Invest in Gold 2026.
Sometimes people get confused here thinking, 'No, long-term capital gains are 12.5%.' But the long-term capital gains tax of 12.5% is for the stock market. The money you put into equity mutual funds or stock market mutual funds, if withdrawn after a year, is taxed at 12.5%. But for debt mutual funds, the taxation is based on the slab rate. However, the tax efficiency here is much better compared to FDs. If we look at the maturity of T-Bills, they are usually less than one year. You'll see maturities of 91 days, 182 days, and also 364 days. As for the expected returns today, they range from 5.3% to 5.8%. This is slightly lower because it's the RBI. With 100% government backing, the risk is the lowest possible. In fact, it's even lower than an FD.
4. Tax Free PSU Bonds
Our next option is Tax-Free PSU Bonds. These are government-backed PSU debt. By PSU debt, I mean that there are mainly three options where tax-free bonds are available. What are these options? There are NHAI bonds, Power Finance Corporation (PFC) bonds, and bonds from REC, which is the Rural Electrification Corporation. If we talk about liquidity, If we talk about the other options we saw, the liquidity was quite high there. We could easily withdraw money. But here it's low to moderate. Here, the liquidity is a bit less. Now, if you're getting tax-free returns, then obviously the government would want you to block your money there for some time. So, here you have 5-year and 10-year bonds. Recently, these bonds haven't even been new issues. If you want to buy these bonds, you'll have to buy them in the secondary market. You won't be able to buy bonds directly from NHAI or REC. And secondly, when you buy in the secondary market, their maturity might also be 5 or 7 years away. So, your money will be somewhat locked in here. That's why the liquidity is low. But at the same time, we also get tax benefits. are tax-free. The minimum amount here is again ₹1000 investment. The maximum amount here also has no limit. None. We can put in any amount of money. Now, if we talk about taxation, please understand this carefully. The 5-year, 7-year maturity periods we are talking about. If you withdraw money at maturity then, no tax will be levied. If you withdraw money before that, meaning you sold it in the secondary market, then capital gains tax will apply, and it will be as per your slab rate.
Also Read, What is Mutual Funds? Mutual Funds for Beginners
Secondly, the durations we discussed were for 10 and 15 years. These bonds used to come. Nowadays, new ones aren't available. So, if you find one in the secondary market whose maturity is after 5, 7, or 10 years, then you'll have to wait for that duration. The expected return here is from 4.5 to 5.5%. You can expect that. But its biggest benefit is that these are tax-free bonds. But along with that, the drawback is that liquidity is a bit low. You'll have to wait for a long time for that. So that was about bank alternatives. I'm sure many people might not know about all these options.
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