5 Best Fixed Deposit Alternatives In India That Works

Are you fed up with the declining Fixed Deposit interest rates year by year? FD interest rates have come down drastically in recent months and you hardly expect 6% interest with any reputed Indian bank. So where to keep our money to get interest rates which could at least beat the inflation rates? Are there any alternatives to the fixed deposit in India?

Best Fixed Deposit Alternatives In India

Fixed Deposit schemes are well known and widely accepted investment instruments. The majority of people in India prefer keeping their excess money in FD and there are reasons for it.

  • Fixed Deposit investments are relatively safe and risk-free.
  • You get a fixed return on investments once the maturity period is over.
  • The process of booking an FD is very simple and can be done over online banking within a minute.
  • It is offering better interest than the savings account.
  • It is eligible for tax deduction benefit if invested for more than 5 years.
  • It offers high liquidity i.e. you can go for premature withdrawal if you need money in an emergency.
  • You can take a loan against your deposit amount from your bank.

Most importantly, it gives you peace of mind and keeps your fund away from the market condition. However, investors should consider booking FD in only reputed and well-established banks. Fixed Deposit schemes are very promising options but these days the return we get the FD is not that lucrative and many people are looking for alternatives to fixed deposits.

Best Alternatives To The Fixed Deposit In India

In this article, I am listing the best possible Fixed Deposit Alternatives available in India. However, you should see the pros and cons of investing in these investment instruments to avoid any possible losses in the future. Also, the purpose of these fixed deposit alternatives is not only a different investment plan but to get more return than an FD.

1. Debt Mutual Funds

Debt Mutual funds are the best if you want better returns than fixed deposits with similar protection. Debt Mutual Funds are different from equity-linked mutual funds and they invest in the safest instruments like Corporate Bond, commercial papers, etc.

When companies need funds to run their business but don’t want to issue shares in public, they often go for dept loans from the fund houses. These debt funds work as a lending business and return and tenure are fixed. Also, these debt funds are only investing in companies with higher credit ratings and good fundamentals. Therefore, it works as a protection to your investment.

Returns from debt mutual funds less compared to equity mutual funds but they offer more return than the traditional fixed deposit. This makes the debt fund as the best alternative to a fixed deposit.

Cons: Debt Fund investment is subject to market risk and if the companies failed to repay the money, interest, or goes bankrupt then the valuation of your investment may go down.

Following are some tips to invest in Debt Funds to get more return and at the same time protect your money;

  • Always invest in debt fund which has the highest AUM i.e. Assets Under Management value. This indicates that the debt fund has proper diversification in investment and has invested in many bonds.
  • Check the long term performance of the debt fund before investing. You can use moneycontrol or value research online for your research.
  • Always look for the debt fund’s investment or portfolio to know where exactly are they investing. This will give you the exposure to debt fund investments.

Read Also — Why Debt Funds Are Better Than FD?

2. National Savings Certificate (NSC)

National Savings Certificate i.e. NSC is one of the post office savings schemes offered by the Government of India. This offers the guaranteed returns on investment but your investment will be locked for 5 years.

Therefore, if your investment horizon is 5 years then you can consider investing in the NSC scheme. It offers better interest rates than FD and also 100% risk-free as it is backed by the Indian Government. You can have joint account investment and you can have an NSC account on behalf of a minor above 10 years of age.

You will not see the huge difference in the return but generally, it offers 1% more interest than the fixed deposit. Many small banks in India could offer more interest than the NSC but I don’t go for FD in small banks considering the risk involved in.

3. Liquid Fund Investment

Liquid Fund is one of the types of debt funds but has smaller investment maturity. These funds mostly invest in government treasury bills and you have the flexibility to invest for a single day till 90 days. Liquid Funds are the best alternative to the savings account but if you are investing in short term fixed deposit then you can consider the liquid funds for the same.

Cons: Liquid Funds returns are also linked with the market and if the company defaults then it will hurt your investment.

Even though liquid fund returns are linked to market conditions but if invested in good quality funds then the chances are very rare. Unlike debt funds, liquid funds invest only in short term instruments like government treasury bills, and returns are guaranteed from these investments. However, one should following the following tips while investing in liquid funds;

  • Only invest in high rated liquid funds.
  • Review the fund’s portfolio and diversification.
  • Invest only in liquid funds with high AUM i.e. Assets Under Management value.

4. Public Provident Funds (PPF)

If your investment horizon is for 15 years then you can go for the PPF account. PPF account offers better than any other fixed return investment instruments. The only drawback is that it comes with 15 years of lock-in period.

Since the purpose of an FD is to deposit money for a long time to grow the same, therefore, you can consider parking a small portion of your excess money in the PPF account. This could solve your future fund requirements like in your kid’s graduation or their marriage.

Even though it comes with the 15 years of the lock-in period, you can go for a 50% partial withdrawal after 5 years of investment. This could be very helpful in emergency fund requirements. In addition to that, you have the flexibility to invest monthly and you can invest as low as INR 1000 per financial year.

Read Also — Key Reasons To Open A PPF Account Explained?

5. Sukanya Samriddhi Yojana Account (SSY)

Sukanya Samriddhi Yojana Account is only applicable to you if you have a girl child under 10 years of age. This is an Indian government-backed small savings account launched for the welfare of Indian girl children.

Sukanya Samriddhi Account comes with a lock-in period of 21 years which could be scary for some people or simply not possible to continue investment in SSY account for that long. However, we invest in FD as part of some investment goal, and if your goal is to secure the funds for tour daughter’s higher education or her marriage then the SSY account is for you.

It allows to withdraw partial fund if you need if for your daughter’s higher education once she turns 18 years old or you need fund for her marriage. In short, even though the maturity period of Sukanya Samriddhi Account is 21 years, you have access to the fund for our daughter’s higher education or her marriage.

Sukanya Samriddhi Yojana Account offers the best interest rates (more than the PPF) and it is 100% risk-free.

You can check out the full information about the SSY account here – Guide to Sukanya Samriddhi Yojana Account.


People prefer FD because it is Risk-Free and provides high liquidity, tax benefit, and guaranteed returns. I have made the following table with the same criteria to compare all the 5 fixed deposit alternatives.

SchemeRiskLiquidityTax BenefitLock-in Period
Debt Mutual FundLowHighNoNo
NSCNo RiskLowYesYes
Liquid FundsVery LowHighNoNo
PPFNo RiksLowYesYes
Sukanya Samriddhi AccountNo RiskLowYesYes

Read Also..

Above five fixed deposits, alternatives could generate more return if invested correctly, however, You should also consider parking some portion of your savings in FD.

I hope you found this information useful and it helped in your financial planning. Let me know if you have any comments or queries in the comment section.

Don’t forget – These views are for educational purposes only and you should do your analysis/research, check the pros and cons of each investment option before investing in it.

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