3 fixed-income plans for regular citizens with over 8% inflation-beating returns

Fixed income is an investment strategy that can provide a consistent income flow with less risk than stocks and mutual funds. The benefits of fixed income include risk-free returns, deposit safety, and long-term wealth building. Bank fixed income investments are seeing an interest rate rise since the hike in repo rate, although they are still below the inflation rate. In June 2022, India’s annual inflation rate decreased from 7.04 per cent to 7.01 per cent, and investors, particularly non-senior persons, can now look at investments for returns that outperform inflation. Senior citizens are excluded from this concern because they receive additional rate benefits, and some private banks are now offering them fixed deposit returns that outpace inflation as a result of the interest rate hike. Therefore, regular customers or non-senior citizens looking for returns that outperform inflation in the current scenario can take a closer look at the investments listed below.

Fixed Deposits

Non-senior citizens can look at the fixed deposit options provided by Tamil Nadu Power Finance and Infrastructure Development Corporation Limited (TNPFC) and Tamil Nadu Transport Development Finance Corporation Ltd (TDFC) if they’re seeking returns on fixed deposits that outpace inflation. Investors should first take a closer look because both of these non-banking finance companies are backed by the government of Tamil Nadu, making interest and deposits much more secure. 

TNPFC provides non-cumulative fixed-deposit options, with terms ranging from 2, 3, and 4 to 5 years. Interest rates vary from 7.25 to 8.00 per cent, and non-senior citizens can get a maximum interest rate of 8 per cent on deposits that mature in 60 months—a rate that is significantly higher than the rate of inflation at the time. The cumulative option from TNPFC has a duration of 1, 2, 3, 4, and 5 years and an interest rate for non-senior citizens that varies from 7 to 8 per cent. 

When an investor invests Rs. 50,000 under the cumulative plan, the maturity amount will be Rs. 74,297 after 60 months, whereas under the non-cumulative scheme, the maturity amount will be Rs. 70,000 when taking the 8 per cent interest rate into consideration. Furthermore, TDFC provides a fixed deposit scheme with two options, the Period Interest Payment Scheme (PIPS) and the Money Multiplier Scheme (MMS). 

In contrast to MMS, which pays interest at maturity after it has been compounded quarterly at the applicable rate of interest, PIPS pays interest either monthly, quarterly, or annually. For deposits made for a minimum of 60 months, TDFC’s PIPS option gives a maximum monthly, and quarterly interest rate of 8.00% and a yearly interest rate of 8.24%, respectively. For non-senior individuals who choose the MMS option, TDFC provides interest rates on deposits maturing in 12 to 60 months that range from 7 to 8 per cent.

Recurring Deposits

It is another variation of fixed deposits, where investors can make monthly deposits as opposed to lump sum deposits in a fixed deposit account. The returns on RDs are comparable to those on fixed deposits, but one thing to keep in mind is that, like fixed deposits, RDs do not offer tax benefits under section 80C. TDS (Tax Deducted at Source) is also applicable to RDs, and it is deducted at a rate of 10% on interest earned on RDs that surpasses Rs. 40,000 for non-senior citizens. 

Keeping these takeaways in mind, regular customers can invest in the RD scheme of Shriram Transport Finance Company (STFC). One most glaring takeaway of the said scheme is Shriram Transport Finance Company RD has been rated “[ICRA] AA+ (Stable)” by ICRA and “IND AA+/Stable” by India Ratings and Research Ltd, and both of which imply a high degree of safety when it comes to a worry when investing in company deposits. The scheme comes with a tenure ranging from 12 to 60 months, and STFC currently offers an interest rate of 7.03% to 8.50% for non-senior citizens. By making a monthly deposit of 500, an investor can get a maturity value of 37,500 after 60 months, considering the current interest rate of 8.50%.

Tax Free Bonds

An organization run by the government issues tax-free bonds for the general public to raise funds. The term “tax-free bonds” refers to an investment option where the interest earned is completely exempt from taxation under Section 10, but the principal amount invested in these bonds cannot be deductible. Tax-free bonds typically have long-term maturity of ten years or more. As these bonds are government-issued, the default risk is quite minimal, making them an excellent choice for investors seeking fixed income. 

However, capital gains on the transfer or sale of tax-free bonds are taxed according to your income bracket if you sell the bonds on the stock exchange and if your holding period is less than 12 months and if held for more than 1 year, the capital gain tax will be applicable at 10%. 

Non-senior citizens looking for inflation-beating returns can invest in National Thermal Power Corporation (NTPC). The bond was issued on December 16, 2013, and it will mature on December 16, 2033. The yield to maturity is 5.4938 per cent per year, while the coupon rate is 8.66 per cent per year. The issuer raised a total of Rs. 312.03 Cr for this bond, and it has been rated AAA by CRISIL and AAA by ICRA. 

NHPC Limited is another tax-free bond that has received the ratings of AAA from CARE with a STABLE outlook, AAA from ICRA, and AAA from IND with a STABLE outlook. The bond was issued on November 2, 2013, and it will mature on November 2, 2033. The bond has an annual interest payment period and a yield to maturity (YTM) of 5.4936 per cent per annum. Its coupon rate is 8.67 per cent per annum. For this bond, the PSU Tax-Free Issuer raised a total of Rs. 336.07 Cr. The coupon rate is higher than that of bank deposits, as well as inflation.

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