Risk is a phenomenon that cannot be defined in the same way for everyone. For eg: some may consider investing in equity mutual funds for the long term; and others may consider both stocks and mutual funds high risk investment options and would prefer investing in the low yielding but safe fixed deposits. Given below are some low-risk options (low volatility) available:
a) Public Provident fund:
You can expect a rate of return in the range of 8%. It has a lock-in period of 15 years and is completely tax free. It comes under the EEE (Exempt-Exempt-Exempt) category i.e. your money is exempt from taxes at the time of investment, accumulation and withdrawal.
b) Bank Fixed deposit:
You can open a fixed deposit with a bank offering the most attractive interest rates. Most banks give you interest rates in the range of 7-9% depending upon the tenure of your deposit. If you opt for a cumulative fixed deposit, you will have quite a sizable corpus at the end of 20 years. You can be fairly certain that your capital will be protected and returns are guaranteed.
c) National pension scheme (NPS):
NPS is tax-effective and follows EET (Exempt-Exempt-Tax) structure for taxation. While putting the money in NPS, an investor can design a portfolio of his choice, where he gets to set exposure to an asset class (equity, corporate debt and government securities) according to his risk appetite or preference. A person who joins NPS at the age of 18 can remain invested in the system till the age of 70.
d) Index fund:
As the name suggests, it is a fund that invests in the index (Nifty50, Sensex, sectoral indices, etc). Its performance tends to mirror that of the index it is replicating. Index funds are passively managed funds that allow investors to participate intelligently in the stock market. Index fund is the safest option for a retail investor who has little or no knowledge about the stock market.
e) Debt funds:
These are essentially liquid funds without any lock-in periods in most cases unless specifically mentioned. Debt funds have historically given returns in the range of 7-9% per annum. Mind you, these returns are not guaranteed either is the invested capital. Short-term capital gains tax applies to income made from any scheme held for less than 36 months and long term capital gain tax of 20%, with indexation benefits applies on investment held beyond 3 years.
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