Got a low appetite for risk? Here’s where you can invest

Every investor has a different investing style. If you have a low appetite for risk, here are some conservative investment options that offer a lucrative interest rate despite market volatility.

Got a low appetite for risk? Here’s where you can invest

Thanks to the coronavirus pandemic, 2020 will be forever remembered as a year when the global economy faced some unprecedented challenges. With a majority of the workforce operating from home and the rest facing unemployment, it’s time to spring-clean your finances. 

Every investor is unique and follows a personal style of investing. So, the best portfolio for someone else might not be the best one for you. The style of investing would revolve mainly around an investor's appetite for risk. Building a portfolio with risk-averse assets is particularly useful in a volatile market like today's. 

Here are some of the best investment options for those with a low risk appetite: 

Savings bond

Saving bonds are one of the best money-saving schemes of passive investment. Backed by the Indian government, a sovereign guaranteed bond allows investors to earn a fixed income irrespective of market fluctuations. It offers great interest rates with no maximum limit of investment. You can choose to earn a cumulative interest income along with the interest and principal amount on maturity, or a bi-yearly interest income. Savings bonds come with little or no risk and let you earn a stable income from your investment. 

Related: Short term investment options for high returns

Fixed deposit

One of the safest investment tools in the market, FDs are unlike mutual funds in the sense that they are not market-driven. Despite fluctuations, you will receive the same rate of interest on your investment throughout the tenure. You can invest up to Rs 1.5 lakh in a tax-saving FD and use it for deductions under 80C of the Income Tax Act. However, returns received from schemes like fixed deposits are taxable. FDs offer cumulative and non-cumulative payouts, so you can choose one as per your financial needs. You can also avail of a loan against your FD at a small interest of 0.5–2%, without having to break it. If you are one to stay away from market risks, FDs also make a great emergency fund while allowing you to make a regular income from interest payouts. 

Related: 5 Banks that give the best Fixed Deposit rates

Recurring deposit

One of the best approaches for investors with a low risk appetite is to follow goal-based investing. This can help you categorise your asset allocation in financial tools that average out market risks. A recurring deposit (RD) is one such convenient and safe tool for systematic investment for risk-averse investors. Unlike an FD, you will not have to pay a lump sum upfront in case of an RD. With a maximum period of 10 years, you can invest as little as Rs 1000 every month in an RD and earn interest on your investment. 

Gold bond

Both physical gold and sovereign gold bonds (SGB) are safe investment options for those looking to accumulate wealth in the long run. However, given the current market scenario, the best way to invest in gold now is through government-issued SGBs. Interest earned on these is exempted from tax and are tradeable at the stock exchange. So unlike physical gold, you will face no liquidity challenges due to low market demand. With a fixed maturity period, you will have to wait at least five years before liquidating your bond. Early liquidation comes at a cost and the capital gains on it will be taxable. Read more about Sovereign Gold Bonds: An attractive tax-free wealth creation investment option

Comparing the options

Whether you are a first-time investor or an expert, there are investment options that are perfect for those with a low appetite for risk. Check out the table below for more detailed information on each of them:

Investment Avenue Interest Rate Why you should consider it
GOI Savings bond 7.15% They are convenient and offer a fixed source of income.
Fixed Deposit 3%-8% Allows both periodic and cumulative payouts. Not subject to market fluctuations. Tax-saver FDs allow tax exemption of up to Rs 1.5 lakh.
Recurring Deposit 3%-9% Allows flexible savings along with tenure options from 0 days to 10 years. Premature and partial withdrawals allowed with a small penalty.
Gold bond 2.5% No risk of storing physical gold. The bonds are tax-free and can be used as collateral for loans.

Rates mentioned above are as of July 2020


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