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Best Investment Option: Indians invest around Rs 60 trillion every year. Of this, about 50% of household savings is invested in real estate and about 15% in bank FDs and gold. Many investors prefer the safety and comfort of physical gold, even though there are alternatives in this asset class in the form of gold funds and sovereign gold bonds. A better alternative to FDs, with better security and features, are government securities, especially Treasury Bills (T-Bills). T-Bill is a letter of commitment issued by the Reserve Bank of India (RBI) almost every week on behalf of the Government of India. These bills come with maturity profiles of 91 days, 182 days and 364 days. They offer market rates which are better than FDs of similar maturity. For example, 3 months and 12 months T-Bills fetch 6.7% interest as against FD rates of 4.5- 6%.
T-Bills are risk free securities, as they come with a government guarantee and are issued at a discount to the issue price. On the day of maturity, these bills are automatically debited from your demat account. The amount corresponding to their issue price is instantly credited to the bank account linked to your demat account. Past data suggests that T-Bills and most open market issued debt securities provide higher returns than bank FDs of similar maturity 70% of the time. Another good investment option is government bonds, which are issued for longer tenures of up to 30 years. The frequency of interest payment is half-yearly.
Investors should identify the time period for which they want to invest in fixed income products. The investment tenure can be anything between, say, 91 days to 30 years. The first step in this direction should be to examine the interest offered by banks on FDs. They should then compare the returns offered by similar maturity T-bills and government bonds. Thereafter, they should invest in the option that offers higher returns.
The biggest advantage of FD is easy liquidity despite low interest rates. However, it should be noted that in an emergency, T-bills and other government securities can be pledged or sold in the market to obtain loans. However, easy liquidity can be a challenge in case of some higher tenor bonds of more than 10 years.
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