10 Top Low-Risk High-Return Investments That Every Risk-Averse Investor in India Must Know About

Investments are subject to market risk - Most of us have probably heard this numerous times. What do these risks imply?

Many types of risks can be associated with your investment, such as liquidity, inflation, capital loss, etc. Therefore, when investing your hard-earned money, it is natural to be cautious.

Also, not every investor has the same amount of risk tolerance. While aggressive investors put their capital at risk for higher returns, conservative investors tend to be risk-averse.

So, here are the top 10 low-risk investment options that let risk-averse investors or conservative investors grow their wealth while protecting capital.

Why Invest Money

Before getting started, let’s understand the importance of investing in wealth creation and protection.

One of the most successful investors of all time, Warren Buffett, once said, "If you don't find a way to make money while you sleep, you will work until you die."

While making money through active income is necessary, learning to generate substantial passive income through investments is essential. Only through buying assets that appreciate over time can you pave the way to financial freedom.

Also, with the current inflation rate in India rising, growth investments become necessary to retain even the existing value of your capital.

Benefits of Investing Money?

• Advantage of compounding as you generate returns on your return from the principal investment
• Outpace inflation in the long run
• Build substantial wealth by staying invested for a long period (minimum 10-15 years)
• Plan your retirement more effectively
• Opportunity to obtain early retirement
• Tax saving under section 80C, 80CCD, and 80D of the Income Tax Act, 1961

What is Low Risk Investment

So, what is low-risk investment? In simple language, it refers to investment opportunities that can beat inflation significantly without much risk of losing your capital.
Low-risk investment options are one of the safest investment options as compared to high-risk investments, where the risk and return increase significantly.
While low-risk investment options may not be the best financial instruments to generate a huge amount of wealth, they are still necessary for two main reasons:

• Capital protection
• Beating inflation

So, even the most aggressive investors should include some of the best low-risk investments in their portfolios.
Also, some low-risk investment options may generate higher returns compared to others.

What is the Difference Between Low Vs High-Risk Investments?

10 Low-Risk Investment Options in India

There are many low-risk investment options in India, from fixed deposits and public provident funds to the best low-risk mutual funds. However, some may be more useful for your financial goals than others.
So, here are the top 10 low-risk high return investments for risk-averse Indian investors.

Fixed Deposits

When it comes to low investment high return options, most investors prefer fixed deposits. Usually, these instruments are one of the safest investments but not with many high returns in normal market conditions.
Although, senior citizens tend to gain the maximum benefit from fixed deposits as they are eligible for higher returns.
However, given the current market condition, banks are offering higher returns on your fixed deposits due to the increase in the RBI repo rate. This may last for some time and provides an excellent opportunity for parking some of your capital in this segment.

Mutual Funds

Not all mutual funds are safe investments with high returns in India.
While equity mutual funds help generate greater returns, they are also subject to market volatility.
On the other hand, debt and liquid mutual funds are secure investments since they invest in government bonds and corporate debts. Usually, these funds can assure a fixed return over a period of time and are excellent diversification tools.
In usual market conditions, debt mutual funds can generate more returns than fixed deposits.

National Pension System

The National Pension System, or National Pension Scheme, was first introduced in 2003 by the Ministry of Finance, the government of India.
It is regulated under the PFRDA Act, 2013, and is a government-sponsored scheme allowing investors to save for retirement. Although at its inception, it was meant for government employees solely, the scheme has been made available for all segments of society.
The scheme also helps save an additional Rs. 50000 on top of the Rs. 1.5 lakhs exemption under section 80CC.

Senior Citizens’ Savings Scheme (SCSS)

Senior Citizen Saving Scheme (SCSS) is one of the best low-risk investments in India. You can make a minimum investment of Rs. 1000 in a financial year (FY) and multiples of it up to Rs. 15 lacs.
However, only retired individuals or those over the age of 55 can open the account. You can open a single account or a joint account with your spouse/partner.
This risk-free investment in India has two major benefits:

• Premature closure
• Tax saving benefits

Public Provident Fund

Public provident funds (PPF) are government-regulated and help in retirement planning. Anyone can open a PPF account.
It is a long-term savings scheme that protects your capital and is highly low-risk.
Investors can have one account per person and invest up to Rs. 1.5 lacs in a financial year (FY). The return is entirely tax-free as it comes under the EEE (exempt-exempt-exempt) category.

Certificate of Deposit

A certificate of Deposit (CD) is another fixed-income scheme regulated under the Reserve Bank of India (RBI) and initiated by the government of India. The certificate is issued in a dematerialized form with a significant payout promised from the start.
Licensed financial institutions can issue a CD, including public sector (PSU) and commercial banks.
The CD is usually issued at a lesser price and can be redeemed at face value, similar to a treasury bill. You would need to invest a lumpsum amount one-time for a specified lock-in period in both of these instruments.
However, treasury bills have a shorter lock-in. But if you plan to save a large amount for a longer period, a CD is an excellent investment instrument.

Municipal bonds

Municipal bonds or Munis are high-yielding debt instruments issued by the state or central government authorities. These are regulated by the Securities and Exchange Board of India (SEBI) and usually mature after three years.
The municipal corporations provide the returns on these secure investments making the risks minimal to almost zero. Investors can opt for a cumulative investment option, where they receive the payout at maturity, or a non-cumulative option, where the payout is given periodically.

National Savings Certificate (NSC)

National Savings Certificate (NSC) is a safe way to invest money for the long term, as the government of India also backs it.
Similar to the Senior Citizen Saving Scheme (SCSS), the minimum investable amount is Rs. 1000, and any amount exceeding this must be in the multiples of Rs. 100. However, the maturity period is five years.
There can be two types of accounts under this plan:

• A single holder type A account
• Joint type B account

You can also avail of loans against this secured investment option.

Voluntary Provident Fund (VPF)

A voluntary Provident Fund (VPF) is another type of provident fund other than the EPF and PPF. It is one of the best low-risk investments for risk-averse investors. The scheme also comes under the EEE (exempt-exempt-exempt) category, similar to EPF and PPF.
This means that any investment into this scheme and the matured amount are tax-free.
However, you must continue the scheme for at least five years before closure.

Gold

Gold has long been a valued hedge against inflation and volatility since the amount of gold is limited and is not easily replicated like fiat money. Also, the price of gold is known to appreciate over time, making it one of the best-secured investment options out there.
Although it may not be the most low-risk high-return investment, it sure helps protect your capital in volatile market conditions.
You can invest in gold in many ways, such as the following:

• Gold mutual funds
• Gold ETF
• Sovereign gold bond
• Glove bullion or physical gold

Safe way to Invest for Beginners

The low-risk high return investment options are not only excellent options for risk-averse or conservative investors but also for first-time investors. It helps them build healthy financial habits without putting their money at greater risk.
Remembering that it takes ample market knowledge to generate wealth while protecting capital is important. But the various secure investments mentioned above can get you started in your investing journey without much hassle.

Steps to Start Investing

• Start small
• Search for safe investments with high returns in India
• Diversify your portfolio into debt and gold
• Put some money into EPF and PPF and other instruments with lock-in so you can’t access them before maturity
• Keep some money in liquid mutual funds and other debt instruments for emergencies
• Buy gold ETFs for better liquidity and gold sovereign bonds for longer investment horizons
• Put some money in bank FDs for the short-term since inflation will not erode your capital in one or two years
• Invest in tax-saving schemes, such as PPF and NPS, to reduce your tax liability

 

 

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