Want to invest ₹2 lakh in safe option but bank deposit rates are low. (2024)

I want to invest ₹2 lakh in a safe option, but bank deposit rates are very low. I have already exhausted my PPF investment limit. Where can I invest this money? I don’t want to take any risk.

- Himanshu Sharma

Your investment choices will depend on your investment horizon. If you want to invest for more than three years, go for short-term debt funds. Long-term capital gains from debt funds are taxed at 20% after indexation. Indexation reduces the tax significantly, especially during periods of high inflation, so your post-tax return will be better than what bank deposits offer.

If the investment horizon is longer, go for Post Office schemes such as National Savings Certificates, Kisan Vikas Patras and the Monthly Income Scheme. They offer higher rates than bank deposits and are completely safe. You can even consider investing in RBI Floating Rate Bonds. These seven-year bonds offer an interest of 35 basis points above the prevailing NSC rate. The current rate is 7.15% but this will change if there is a change in the small savings rate. However, given the public uproar against a cut in small savings interest rates in April 2021, it seems unlikely that the government will cut rates anytime soon.

Though the interest on these small savings schemes and RBI bonds is assured and there is no capital risk, the income will be fully taxable at the slab rate applicable to you. If you are in the 30% tax slab (income of over ₹10 lakh a year), the post-tax return from the 7.15% RBI Bonds will be only 4.92%.

There are some tax-free options other than PPF, but only if you don’t want liquidity. For instance, if you are covered by the Provident Fund, you can put more into the scheme through the Voluntary Provident Fund. It offers 8.5% tax free returns but the money gets locked till you retire. Another tax-free option is the Sukanya Samriddhi Yojana, which can be opened for girls below 10. It offers 7.6% tax free, but the money is locked up for 21 years or till the girl turns 18, whichever is earlier.

Raj Khosla is managing director at MyMoneyMantra.com. Send queries and views at mintmoney@livemint.com

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