8 Best Alternatives to Fixed Deposits in India

8 Best Alternatives to Fixed Deposits in India

Fixed Deposits (FDs) have long been a preferred investment choice for many Indians due to their safety and guaranteed returns. However, with current FD interest rates often lagging behind inflation, investors are exploring alternative avenues that offer higher returns, tax benefits, and greater flexibility. Here are eight such alternatives:

1. Mutual Funds

Overview: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities.​

Types:

  • Equity Mutual Funds: Invest primarily in stocks; suitable for long-term growth.
  • Debt Mutual Funds: Invest in fixed-income instruments; ideal for conservative investors.
  • Hybrid Funds: Combine equity and debt investments for balanced returns.​

Benefits:

  • Potential for higher returns compared to FDs.
  • Professional fund management.
  • Liquidity and flexibility in investment amounts.​

Considerations:

  • Market-linked returns; subject to volatility.
  • Returns are not guaranteed.​
  • Potential loss of Principal amount.

2. Public Provident Fund (PPF)

Overview: PPF is a government-backed long-term savings scheme offering attractive interest rates and tax benefits.​

Features:

  • Tenure of 15 years, extendable in blocks of 5 years.
  • Interest rate is revised quarterly; currently around 7.1%.
  • Investments up to ₹1.5 lakh per annum qualify for tax deductions under Section 80C.
  • Interest earned is tax-free.​

Benefits:

  • Safe and secure investment.
  • Tax-efficient returns.
  • Ideal for long-term financial goals like retirement.​

Considerations:

  • Lock-in period of 15 years; partial withdrawals allowed after 6 years.
  • Limited liquidity.

3. National Savings Certificate (NSC)

Overview: NSC is a fixed-income investment scheme offered by the government, primarily through post offices.​

Features:

  • Fixed tenure of 5 years.
  • Current interest rate is approximately 7.7% per annum.
  • Investments up to ₹1.5 lakh per annum qualify for tax deductions under Section 80C.
  • Interest is compounded annually but paid at maturity.​

Benefits:

  • Safe investment with guaranteed returns.
  • Tax benefits under Section 80C.
  • Can be used as collateral for loans.​

Considerations:

  • Interest earned is taxable.
  • No premature withdrawal allowed.

4. Real Estate Investment Trusts (REITs)

Overview: REITs are companies that own, operate, or finance income-generating real estate across various sectors.​

Features:

  • Invest in commercial properties like offices, malls, and warehouses.
  • Listed on stock exchanges; can be bought and sold like stocks.
  • Mandatory to distribute a significant portion of income as dividends.​

Benefits:

  • Provides exposure to real estate without the need to buy property.
  • Regular income through dividends.
  • Liquidity due to stock exchange listing.​

Considerations:

  • Subject to market risks.
  • Returns depend on the performance of underlying properties.

5. Gold Investments

Overview: Gold has traditionally been a favored investment in India, serving as a hedge against inflation and currency fluctuations.​

Investment Options:

  • Physical Gold: Jewelry, coins, bars.
  • Digital Gold: Online platforms offering gold in digital form.
  • Gold ETFs: Exchange-traded funds that track gold prices.
  • Sovereign Gold Bonds (SGBs): Government securities denominated in grams of gold, offering interest and capital appreciation.​

Benefits:

  • Diversifies investment portfolio.
  • Acts as a safe-haven asset during economic uncertainties.
  • SGBs offer additional interest income.​

Considerations:

  • Physical gold involves storage and security concerns.
  • Gold prices can be volatile.

6. Corporate Fixed Deposits

Overview: Corporate FDs are term deposits offered by companies and Non-Banking Financial Companies (NBFCs) to raise capital.​

Features:

  • Higher interest rates compared to bank FDs.
  • Tenures ranging from 1 to 5 years.
  • Some are rated by credit rating agencies, indicating the creditworthiness of the issuer.​

Benefits:

  • Potential for higher returns.
  • Fixed income over the tenure.​

Considerations:

  • Higher risk compared to bank FDs; dependent on the company’s financial health.
  • Not covered by Deposit Insurance and Credit Guarantee Corporation (DICGC).

7. National Pension System (NPS)

The National Pension System (NPS) is a government-sponsored retirement savings scheme designed to provide regular income post-retirement. It is a voluntary, long-term investment plan for individuals aiming to secure their financial future.​

Key Features:

  • Eligibility: Any Indian citizen between 18 and 70 years can open an NPS account.​
  • Account Types: NPS offers two types of accounts: Tier-I (mandatory for availing tax benefits) and Tier-II (optional savings account with flexible withdrawals).​
  • Investment Options: Subscribers can choose their investment mix among equity, corporate bonds, government securities, and alternative assets, depending on their risk appetite.
  • Tax Benefits: Contributions up to ₹1.5 lakh are eligible for tax deduction under Section 80C. An additional deduction of ₹50,000 is available under Section 80CCD(1B), making NPS a tax-efficient investment option.
  • Withdrawals: Partial withdrawals up to 25% of self-contribution are allowed after three years for specific purposes like higher education, marriage, or medical treatment. ​

Benefits:

  • Retirement Planning: NPS is specifically designed to build a retirement corpus, ensuring financial stability in the later years of life.​
  • Flexibility: Subscribers have the freedom to choose or change their fund managers and investment options, offering control over their investments.
  • Portability: The NPS account is portable across jobs and locations, making it convenient for individuals with transferable jobs. ​

Considerations:

  • Lock-in Period: The Tier-I account has a lock-in period until the age of 60, with limited withdrawal options before that age.
  • Market-Linked Returns: As NPS investments are subject to market risks, returns are not guaranteed and can fluctuate based on market performance.

Also Read: How Much Money Do You Need to Achieve Financial Freedom? A Comprehensive Guide

Also Read: SIP vs Lump Sum Investment: Which one should you choose?

Also Read: 10 Personal Finance Books to Grow Your Wealth in 2025

8. Post Office Monthly Income Scheme (POMIS)

The Post Office Monthly Income Scheme (POMIS) is a government-backed savings scheme that offers a fixed monthly income to investors. It is ideal for individuals seeking a steady and reliable income stream with minimal risk.

Key Features:

  • Interest Rate: As of 2025, POMIS offers an interest rate of 7.4% per annum, payable monthly. ​
  • Investment Limits: The maximum investment limit is ₹9 lakh for a single account and ₹15 lakh for a joint account. ​
  • Tenure: The scheme has a lock-in period of 5 years. Upon maturity, the principal amount can be withdrawn or reinvested.
  • Eligibility: Any Indian citizen can invest in POMIS. Minors aged 10 years and above can also open an account, which can be converted to an adult account upon reaching 18 years. ​

Benefits:

  • Capital Protection: Being a government-backed scheme, POMIS ensures the safety of the invested capital until maturity.
  • Regular Income: Investors receive a fixed monthly income, making it suitable for retirees or individuals seeking a steady cash flow.​
  • Ease of Operation: The scheme offers facilities like nomination, account transfer between post offices, and auto-credit of interest to a savings account. ​

Considerations:

  • Taxation: The interest earned from POMIS is taxable, and no tax deductions are available under Section 80C. ​
  • Premature Withdrawal: Premature closure is allowed after one year, but it attracts a penalty.

Conclusion

While Fixed Deposits have been a traditional choice for risk-averse investors, the current economic landscape offers several alternatives that can provide better returns, tax benefits, and flexibility. Options like Mutual Funds, PPF, NSC, REITs, Gold Investments, Corporate FDs, NPS, and POMIS cater to various investment goals and risk appetites.​

Before making investment decisions, it’s crucial to assess individual financial goals, risk tolerance, and investment horizons. Diversifying investments across different instruments can also help in balancing risk and achieving financial objectives effectively.

Disclaimer: The information provided in this article is for educational and informational purposes only. It does not constitute financial advice or a recommendation to invest in any specific financial product. Investors are advised to assess their financial situation, risk tolerance, and consult a certified financial advisor before making any investment decisions.

Share
Scroll to Top