Although the idea of receiving great returns on safe investments may seem like an impossible proposition, there are a few options that balance risk and return quite efficiently. The catch lies in the fact that you want to invest your hard-earned money only in safe and highly-rewarding schemes.
If you do feel that a low-risk investment is the best course of action in terms of financial security and stability, there are still a lot of options available for you. In this case, your goal should be investing in something that is more secure than the stock market, but also something that yields higher returns than super safe investments. For this, your search should be limited to assets that provide a healthy balance of high return and low risk, which means there is a lower chance of losing your principal, but also supplies higher returns as compared to risk-free investments.
Here Low Risk Investments with Respectable Returns
1. Peer-to-Peer (P2P) Lending
P2P Lending is a highly recommended short-term investment which involves lending your money to someone with the hope that they will pay you back, instead of buying shares in a company and its future profits. Screening your loans appropriately can result in very good returns. Carefully choosing the best rated loans is a good way to do this, and involves very little risk. Just make sure you avoid those with a high default rate, and you can earn some great returns. P2P Lending companies offer screening tools and portfolio settings to make for your convenience, where you can target a certain rate of return and search for matching loans. You can also spread your investments over hundreds of different loans to reduce risk further.
2. High Interest Savings Accounts
The easiest way to earn some interest on your money is through a high yield savings account. You will earn a nominal amount of interest just for keeping your money on deposit. All you have to do is open an account and deposit your money, but make sure you choose a good financial institution that offers competitive rates of interest at no fee. It should also provide good customer service, online account management, and easy deposits. You can earn up to 7% interest on your savings bank account in India, depending on your bank of choice. However, the average offering from most recognized banks is 4%.
If you wish to stabilize your portfolio over a long period of time, annuities are a good investment. However, it is important to consider the risks and consult with a good financial advisor, since they are complicated financial instruments with a lot of clauses included in the contract. There are many different annuities, but purchasing any one is similar to making a trade with an insurance company. In return for a lump sum amount, you receive a stated rate of guaranteed return. Based on type of pension amounts offered, annuities can be:
• Equity indexed
Fixed annuities provide fixed returns, which translates to lower risk. Your annuities are backed by the insurance company, and are usually very safe despite being complex products.
4. Money Market Funds
A money market fund is a type of mutual fund designed for those who do not wish to lose their investment principal. It usually pays a little interest in addition to making your cash deposit in the fund worthwhile. These funds have a strong history of protecting the value of your cash. Market fluctuations have little to no effect on them, so you do not have to be concerned about losing your principal.
5. Municipal Bonds
A municipal bond is a debt instrument issued by urban local bodies that promises to repay a fixed principal amount with interest periodically, which may be paid at fixed intervals or at the end of the tenor, with the principal. Recently, Pune’s municipal corporation raised Rs.200 crore by issuing municipal bonds at a 7.5% semi-annual rate, for a 10-year tenor. Investing in such municipal bonds is generally very safe since the likelihood of municipality bankruptcy is very low.
6. Certificate of Deposit
You can get a Certificate of Deposit from commercial banks and some financial institutions. You need to deposit a minimum amount of Rs.1 lakh to avail a Certificate of Deposit. You can deposit your money for a set period of time and receive a guaranteed return in exchange. A Certificate of Deposit ensures you get a fixed interest rate for that time period regardless of interest rates. However, you have to pay a penalty if you wish to retrieve your funds ahead of time. The government guarantees that you will not suffer a loss, while the financial institution offers the additional interest. This is determined by the length of your Certificate of Deposit and current interest rates. It is important to note, however, that they are usually applied for by institutions and not individuals.
7. Credit Card Rewards
The high amount of competition among financial institutions in the Indian market has led to them offering credit cards with a host of great rewards. They also let you earn ‘points’ that convert into real money. The rewards and cashback offers from credit cards provide a much better deal when compared to a Certificate of Deposit or a Savings Bank Account.
8. Bank Bonuses
Most banks offer some sort of bonus for signing up with them. This way, you can earn some free cash or rewards by investing a little money to open an account with the bank. Such bonuses may be regional sometimes, so you should check their websites properly before locking in any amount of money with them. In exchange for the bank bonus, you are required to keep your money on deposit for a certain period of time. Additionally, you may be asked to set up direct deposit into your account, or apply for a debit card owned by the bank. It might take some time, but also provides a fair amount of bonus. You can always close your account once you receive the bonus and satisfy all the requirements.
9. Treasury Bills
These instruments offer short-term investment opportunities, usually up to 1 year. The Government of India offers three types of treasury bills through auctions—91-day, 182-day, and 364-day. The minimum amount for investment is Rs. 25,000, and this increases in multiples of Rs.25, 000. They are associated with zero risk because of issuance by the government, and you can opt for one electronically from the Negotiated Dealing System (NDS).
10. Fixed Deposits
These are one of the safest investments to make, and provide a respectable rate of return if you compare them with most other low-risk investments. Investing in fixed deposits from well-reputed financing companies provides additional advantages, like high stability and credibility. You can also avail a flexible tenor to better manage your finances. Independence from market fluctuations and volatility, plus a rate of return amounting to more than 7.5% makes fixed deposits both safe and preferable.
If you’re looking to invest in a low-risk instrument, Bajaj Finance offers FD (Fixed Deposits) with a rate of interest up to 8.1%, and CRISIL’s FAAA/Stable Rating, making it ideal for achieving a balance between risk and reward.
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