Risk-Proof Your Future With Equities

Given the diminishing returns on risk-free investments, even cautious investors need to look beyond them—at equity, for example

- Jigar Pathak

Investors with a low risk appetite have seen their returns fall quite dramatically in the recent past, be it on small savings instruments like Public Provident Fund (PPF), National Savings Certificates (NSC), Kisan Vikas Patras (KVP) and Post Office Monthly Income Schemes or fixed/ recurring deposits in banks. Unlike the early 2000s that saw double-digit rate of returns, the interest rates for small savings instruments are currently hovering around 8 per cent.

Interest rates on small savings schemes have been linked to government bonds since 2011. The 15-year PPF account currently offers 7.6 per cent interest, the same as NSCs, while KVPs offer 7.3 per cent. The Sukanya Samriddhi Yojana (for the girl child) and Senior Citizens’ Savings Scheme are more attractive, offering 8.1 per cent and 8.3 per cent returns respectively, but they are open to select groups. Bank FDs offer interest rates of around 7 per cent, but the actual returns amount to much less after tax deduction.

Given the inflation trends, the returns from small savings schemes may not be enough to build a robust retirement corpus or take care of major expenses, such as illness, children’s education, etc. “If someone wants assurance of yield, they are better off going for traditional investments, such as small savings schemes,” says Lakshmi Iyer, chief investment officer and head (products) at Kotak Mutual Fund. “But, apart from stability, you will get nothing else.”

Interest rates, however, have witnessed a turnaround of late, with the Reserve Bank of India (RBI) increasing the repo rate twice by 0.25 per cent in the past few months. The rates could go up further in the next few months if inflation remains at its current levels or goes up further.