subject: Get Higher Returns from Debt Options [print this page] Get Higher Returns from Debt Options Get Higher Returns from Debt Options
Everyone tries to save a percentage of the earnings for future needs. These savings need to be protected from inflation. Hence, there arises a need for investments. There are many investment instruments available in the market which can be segmented based on various criteria like returns offerings, timeframe, risks etc. Currently, the markets are on a high and many instruments have already had significant value appreciation over the last few quarters.
This makes it a tough choice for investors. Choosing the right investment instrument is not easy. The recent rise in interest rates has made some of the debt market instruments attractive, especially for investors with a low risk appetite. The Reserve Bank of India (RBI) started tightening the monetary policy from the beginning of this year to prevent the economy from overheating.
Economic overheating means excess liquidity in the system, artificially high prices, high inflation, asset bubble etc. Monetary tightening by the RBI will mean higher interest rates on deposits and debt-based instruments. On the other hand, various loan schemes - auto loan, consumer loans, personal loan and home loans - will become dearer. The RBI has already increased its policy interest rates four times this year in small steps.
It a gradual transition from a soft monetary policy regime to a tighter monetary policy regime. As a result, interest rates across the board have gone up and there are voices from the corporate sector asking to hold further tightening. However, analysts believe the RBI will continue its hawkish stand against inflation and that will lead to further hikes in interest rates in the near to medium terms. The next RBI quarterly monetary policy review meet scheduled in the first week of November is of interest to all.
Investment options:
Bank deposits
The basic feature of bank deposits is safety of the principal amount, easy liquidation of deposit and accumulation of regular interest. The interest rates on bank fixed deposits are on a rise after the RBI's decision to tighten the monetary policy. Short-term fixed deposits and even savings bank accounts offer a good return for those looking at parking their excess funds for a short term. Analysts suggest bank deposit should be the choice when it comes to safety of capital and ease in liquidation along with guaranteed returns.
Company deposits
Recently, many companies have floated fixed deposit schemes in the market. The company deposits come with a lock-in period of a few years and these schemes offer attractive returns. Investors should read the risk document and analysts' opinions carefully before taking any investment decisions.
Debt-based bonds
Investments in liquid mutual funds and debtbased mutual funds are equivalent to bank deposits. These funds invest in risk-free government securities and top-rated corporate deposits, and offer slightly higher returns than bank deposits. Investors looking for a regular income can select schemes under the monthly income plan. Investors looking for long-term investment instruments should also consider tax-saving instruments like provident fund (PF, PPF, VPF etc), NSCs, infrastructure funds etc.
Gold
Investments in gold or gold-based investment instruments are used as a hedge against inflation. Gold-based instruments have given good returns during the financial crisis periods. Gold prices have gone up consistently over the last few years. Analysts believe the financial turbulence at the global level has some more unpleasant surprises left in the near future, and as a result, the outlook on precious metals remains positive in the short to medium terms.
Real estate
Those looking for a longterm investment can also look at buying a property. An investment in property can be made to earn regular income in the form of rent or for capital appreciation. Usually, an investment in property is a low-risk option. It is important for investors to check titles and papers.
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