In the small savings space, several products still offer good returns, but you will have to forgo liquidity. The Public Provident Fund
(PPF) offers 7.1 per cent tax-free return. “Senior Citizens Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) are excellent for the elderly,” says Suresh Sadagopan, certified financial planner and founder, Ladder 7 Financial Advisory. SCSS offers 7.4 per cent return (taxable). The PMVVY will offer 7.40 per cent per annum (taxable) in FY 2020-21.
Those with a girl child aged less than 10 can start the Sukanya Samriddhi Account (SSA), which offers 7.6 per cent (tax-free on maturity). Another good option is the 7.75 per cent GoI Bond (taxable).
Investors may also turn to debt funds, which offer liquidity and favourable tax treatment if held for more than three years. The safest option is overnight funds, which invest in one-day, mostly government papers. Next, you may opt for liquid funds that invest in papers with up to 91-day maturity. Further up the maturity curve are shorter-duration funds with up to one-year average maturity.
“Many shorter-duration schemes have, in recent times, rejigged their portfolios towards high-quality papers,” says Sadagopan. Investors with some risk appetite may go for funds with a modified duration of two-three years. “If you invest in them now and rates fall further, you will get a return kicker,” says Arun Kumar, head of research, Fundsindia.com.
Another product that is gaining traction s the Bharat Bond Exchange Traded Fund (or fund-of-fund). “It does not carry credit risk because it invests in AAA PSU bonds. It is liquid and you can eliminate duration risk by investing for the entire tenure,” says Radhika Gupta, chief executive officer, Edelweiss Mutual Fund.
Finally, you may also consider banking and PSU funds that invest in government papers of up to three-year maturity.