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NEW DELHI : Fixed deposit (FD) rates for customers of large banks have been steadily declining over the past decade. It went down from about 8.2% in 2011 to 7.9% in 2014, and finally to about 5% in 2021. Thus, investing in FDs may not be beneficial, especially for customers in the 30% tax bracket, as the present effective rate becomes a mere 3.5% post-tax, said Prateek Mehta, co-founder and chief business officer, Scripbox.

Owing to weaker economic conditions, further accelerated by the covid-19 pandemic, central banks worldwide have been cutting interest rates. The high-interest rate phase for FDs doesn't seem to be returning anytime soon, say investment experts. Thus, investors can look for alternative investment options that provide marginally higher fixed returns in such scenarios.

AAA Corporate FDs, which are similar to regular FDs and are offered by NBFCs, can be an alternative as they provide a rate of up to 6.5% pre-tax and 4.5% post-tax. Similarly, AAA corporate bonds can also offer up to 6% post-tax with added indexation benefits on long term capital gains. It is important to note that deposits rated AAA (highest rating) are safer than those with AA, A, or BBB rating.

FDs in small finance banks provide a pre-tax interest rate of up to 7% on an amount of up to 5 lakh per bank. The government issued National Saving Certificates (NSCs) can offer an interest rate of around 6.8%, making them safe and beneficial investment options, said Mehta.

For small savings of up to 1.5 lakh per annum, Public Provident Fund (PPF) provide varied interest rates with the current interest rate as 7.10%, and these aren't taxed.

Mehta further said, "With returns of up to 6%, guaranteed income life insurance plans can be more profitable investment bets in comparison with FDs since these returns aren't even taxable as per the current law."

Besides, specific saving schemes/FDs can offer a high rate of up to 7.2% pre-tax for senior citizens. The SCSS (Senior Citizens Saving Scheme) offering 7.4% and PMVVY (PM Vyaya Vandana Yojna) are good products that senior citizens can avail.

Point to note

All these investment plans have different constructs, and thus, the suitability for each one can vary across segments of investors, depending on their goals and expectations. It is essential to take help from an investment adviser before zeroing in on an investment product.

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