Low-Risk, High-Return Investments to Consider in 2024-25

To grow your funds and beat the inflation, it is crucial to opt for a balanced investment strategy. A key part of this strategy is diversification of portfolio, which you can achieve by investing in certain high-return, low-risk investment avenues.

Key Characteristics of High-Return, Low-Risk Investments

Here are some characteristics of choosing a high-return, low-risk investment plan:

• No high-risk association and safer investments 

• Returns could be steadier when compared to high-risk plans

• Suitable for short-term goals and might help in preservation of capital 

• For growing capital over time, compound interests are applicable to these schemes

• Some schemes offer tax deduction liability under different sections of the Income Tax Act of 1961

List of High-return, Low-risk Investment

Risk and return are two important aspects of an investment option. Generally, most investments that are low-risk tend to offer low returns. On the contrary, investment options that are high-risk tend to offer higher returns. 

As an investor, it is natural for you to want to invest your hard-earned money in high-return, low-risk investments. But then, investors need to be aware of such options in India. Fortunately, there are many. 

Here’s an overview of 12 types of high-yield, low-risk investments that you may consider. 

Debt Mutual Funds

A mutual fund is an investment instrument that pools money from multiple investors and invests it in a singular asset or a basket of assets. As the name itself signifies, a debt mutual fund invests the pooled money in debt instruments. 

These include government securities, money market instruments, and corporate bonds and debentures. The debt instruments that these mutual funds invest in are fixed-income options - the returns tend to be more stable than what other investments offer. 

Although there are a few risks involved relating to interest rate risk and credit risk, they come with relatively low-risk. Also, you can reduce the risk further by opting for debt mutual funds that invest in instruments that carry high credit and safety ratings. 

National Pension System

The National Pension System (NPS) is a high-return, low-risk investment plan. Established by the Government of India through the Ministry of Finance, it is a long-term retirement-focused savings plan. 

In this investment plan, you’re required to make contributions till you attain the age of 60. Once you attain the retirement age, you get to withdraw 60% of your accumulated corpus as a lump sum amount. 

The remaining 40% of the corpus is converted into annuity benefits, and you receive regular monthly income for life. The Government of India backs up this plan, and it comes with low risk. Meanwhile, the returns are market-linked and can be anywhere from 8% to 10% or more.

Public Provident Fund (PPF)

Backed by the Government of India, PPF is a high-return, low-risk investment option that is simple and hassle-free. According to this plan, you’re required to contribute a minimum of ₹500 in a financial year. There’s also a maximum contribution limit of ₹1.5 Lakhs per financial year.

Although the plan comes with a lock-in period of 15 years, you can opt to partially withdraw the corpus. You can do so after the expiry of 5 financial years from the year of account opening. Since the government backs the plan, PPFs are extremely safe. 

The interest rate for the plan is fixed by the Government of India and revised every quarter. Currently, the PPF interest rate is set at 7.1% per annum for the October to December quarter (Q3) of the financial year 2024-25.  

Fixed Deposit

Fixed deposits have traditionally been one of the most popular investment options in India. FDs offer a lot of flexibility in terms of the tenure of the investment and the interest payout frequency. Also, fixed deposits aren’t just offered by banking institutions alone. 

In fact, many Non-Banking Financial Corporations (NBFCs) offer this facility as well, often at rates of interest that are more attractive than what many traditional banks provide. 

With the recent hike in the repo rates by the Reserve Bank of India, most banks and NBFCs have raised the interest rates on fixed deposits across the board. Also, the risk associated with fixed deposits is very low compared to equity and other market-linked investments.  

Fixed Deposits offer enhanced safety with insurance coverage of up to ₹5 lakhs, provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC). In the case of NBFC FDs, you can choose to invest in plans that carry a high credit rating.  

Senior Citizens’ Savings Scheme (SCSS)

As the name signifies, the SCSS is a government-backed investment option for individuals above 60 years of age. You can open an SCSS account at a post office or at a bank. The scheme has a fixed tenure of 5 years, which you can extend for three years. 

You can invest a maximum of ₹30 Lakhs as a one-time lump sum investment. You also get to prematurely withdraw the investment before the expiry of the tenure in case it’s necessary. 

For the October to December quarter (Q3) of the financial year 2024-2025, the Indian government has set the interest rate on SCSS deposits at 8.2% per annum. Quarterly payment of accumulated interest happens here. 

You also get to enjoy tax benefits to the tune of ₹1.5 Lakhs under section 80C of the Income Tax Act, 1961. 

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Launched in 2017, the PMVVY is also a long-term investment option with zero investment risk for senior citizens. The returns are also attractive and higher than most other traditional investment options.

The Life Insurance Corporation of India (LIC) operates this investment avenue, and the government of India backs it up. Similar to SCSS, you can invest a maximum of up to ₹15 Lakhs at an interest rate of 7.40% per annum. 

The interest is credited monthly, making it the perfect option for retired individuals as a regular source of income. 

Real Estate

Real estate investments are often considered to be cumbersome in nature. However, investing in a good property can give you high returns in the long run despite the many rules and regulations involved. 

Thanks to the ever-increasing popularity and demand for real estate spaces, the investment risk is fairly low. Depending on the location, you also get to enjoy decent levels of liquidity. However, before investing in real estate, it is advisable to first thoroughly analyse the property in question. 

Gold

Gold is another very popular investment option in India. The value of gold tends to be quite stable, which helps reduce the investment risk. Meanwhile, the scarce nature and high demand for this precious metal ensure that its value continues to appreciate in the long run.  

Another major advantage of this high-return, low-risk investment is that there are many ways to invest in gold. For instance, you could invest in gold jewellery, gold coins or bars, digital gold, or even Sovereign Gold Bonds (SGBs). 

Annuities

They are typically offered by life insurance providers. There are two types of annuity plans that you can invest in - immediate annuity and deferred annuity. 

In the case of an immediate annuity, you purchase the plan by paying a lump sum amount. In return, you receive a monthly pension for life starting from the immediately succeeding month. 

In the case of a deferred annuity, you purchase the plan through a lump sum payment or via regular premium payments. However, you don't receive the pension immediately. Instead, you receive it only after a specified period of time has elapsed. 

Life insurance providers offer annuities and provide above-average returns along with a life cover.

Municipal Bonds

Municipal bonds are debt instruments issued by urban local municipal bodies. Municipalities issue bonds to investors to raise funds for development work. These bonds are heavily regulated by the Securities and Exchange Board of India (SEBI) and are often considered to be low-risk. 

The tenure for municipal bonds is usually around 3 years, with the interest rates being near the prevailing market rates. With these bonds, you can choose to receive the interest on your investment periodically or on maturity with the principal amount. 

This makes them one of the best high-return, low-risk investments that you can currently opt for. 

Certificate of Deposit (CDs)

Issued by banking institutions, CDs are short-term money market instruments. The tenure of CDs starts as low as 7 days and can go up to a year. These instruments are issued in dematerialised (demat) form. You need to have an active demat account to invest in them. 

Usually, a Certificate of Deposit is issued at a discount and redeemed at face value, the difference being the return on investment. CDs are heavily regulated by the Reserve Bank of India (RBI) and so, carry very low risk. 

The minimum deposit amount is ₹5 Lakhs, and you can invest in as many CDs as you wish in multiples of ₹5 Lakhs. 

Treasury Bills

Treasury Bills, also known as T-Bills, are low-risk, high-reward investments issued by the government of India. This effectively means that these money market instruments carry zero investment risk. Currently, T-Bills are issued in India in three different tenures: 

• 91-day bills

• 182-day bills

• 364-day bills

These money market instruments are zero-coupon securities, which means that they are issued at a discount and then redeemed at face value. The difference between the issue price and the maturity value is the return that you earn.  

National Savings Certificate (NSC)

The government of India provides these investment options through post offices. This scheme provides fixed-income options with low risk while inclusion of tax benefits under Section 80C. This scheme is open in any nearby post office branch with a fixed maturity period of five years. 

As the return rate is higher and has two types of certificates, investors can start from a minimum of ₹1,000 and get tax-saver benefits. For secured loans, banks and NBFCs accept this scheme certificate as collateral with the possibility of adding a nominee to the joint account. 

Sukanya Samriddhi Yojana (SSY)

The SSY scheme is primarily designed for girls and can be opened at any nearby post office or bank branch. It is available for girls under the age of 10, with a minimum deposit of ₹250. The government sets the interest rates on a quarterly basis. 

The scheme has a maturity period of 5 years and qualifies for tax deductions under Section 80C. Offering higher interest rates and a maximum limit of up to ₹1.5 Lakhs, compound interest is added annually. It provides efficient funds for girls’ education and marriage.

High-Yield Savings Accounts

Instead of regular savings accounts, these accounts provide a bank account with a low-risk option. With high interest rates, these accounts are suitable for short-term financial goals. You can earn higher interest compared to normal savings accounts with online banks. 

They offer higher safety, with banks that have lower overhead costs providing them at attractive rates.

Debt-focused Unit Linked Insurance Plans (ULIPs)

ULIPs involve investing the premium in debt or money market instruments, government securities, or bonds. This option consists of lower risk factors and is suitable for investors willing to seek higher returns while lowering risks. ULIPs offer stable income while preserving funds and offering good returns. 

Series I Savings Bonds

These bonds are directly backed by the government, making them safer for investors with a low risk tolerance. As the name states, these bonds adjust according to inflation. If inflation rises, the saving bond values go higher. Vice-versa, the value can decrease with the declining inflation. 

Corporate Bonds

Public and private companies issue these debt securities or bonds to raise funds for expensive purchases or business expansions. You lend money to the company, which promises to repay the principal on a specific maturity date along with interest returns. 

The risk level here tends to be low to moderate, and expected returns are usually moderate to high. 

Preferred Stocks

Preferred stocks are a combination of bonds and stocks where the dividend is fixed and typically higher than the dividend on common stocks. They offer a stable income option and have a lesser risk when issued by financial institutions or corporations. 

This option allows companies to raise funds without granting voting power and is available for trading on stock exchanges. It tends to have moderate to higher liquidity than other stocks. You can also limit the impact of shareholders on a corporate decision.

Money Market Funds

These include debt instruments and deposit certificate investments, which are usually low in risk. Money market funds tend to offer moderate to higher yields than typical savings or money market accounts. 

The returns can vary and are suitable for investors looking for bigger yields. However, this option is not FDIC-insured. You can purchase it through a mutual fund or brokerage firm.

Bond Funds

These funds are well-managed portfolios packaged together in the form of a mutual fund or ETF. This investment strategy usually offers low to moderate risk and provides steady, fixed returns. They allow you to indirectly buy bonds, which is suitable for diversified bond investments. 

Bond funds typically offer moderate safety and high liquidity. You can purchase them through any mutual fund or brokerage firm.

Voluntary Provident Fund (VPF)

Unlike the EPF, where a deposit is mandatory, VPF is a non-mandatory scheme. Employees can contribute more than 12% of their EPF amount, with contributions ranging from 12% up to 100% of their basic salary and other allowances.

The interest rate is the same as that of the EPF, and the maturity period is limited to 5 years, with no option for early withdrawal. Available exclusively to salaried employees, VPF is a low-risk option as it is backed by the government. 

Systematic Deposit Plan (SDP)

An SDP is also known as a recurring deposit scheme. It offers flexibility in amount and tenure and provides competitive returns. You can start with a minimum contribution of ₹50 or ₹100 and gain additional interest rates if you are a senior citizen. 

With monthly fixed contributions, the tenure can range from 6 months to 10 years. Some banks and financial institutions also provide instant loans of up to 95% of the deposit amount. 

Strategies to Maximise Returns While Minimising Risk

To ensure that you lower the risks and also receive additional returns, you can follow these strategies:

• There are risks associated with market conditions, such as inflation, interest rates, liquidity, business, etc. It is necessary that you identify all the risks before investing and take precautions while assessing their severity.

• Investing in a single scheme or investment plan can account for risks altogether. Consider diversifying your investment portfolio across different industries, companies, and classes. This approach ensures that if you incur a loss in one plan, the backup plan is already in place to offset the losses.

• Allocation of assets into cash, stocks, and bonds will help you ensure that your financial goals cover plans and work freely. It provides a balanced investment plan. This can help you achieve your long-term goals in focus and manage your risk appetite.

• Reshaping your investment plan can also help you recheck decisions while rebalancing assets.

Factors Affecting High-Return Low-Risk Investments

Some crucial factors that can influence decisions regarding both low-risk and high-return investments include:

• Risk tolerance or risk appetite is a factor influencing these investments. In some cases, higher returns can also mean higher risks. As a result, analysing the balance between lower risk and good returns is a crucial consideration for investors.

• Based on your risk appetite and tolerance, you need to check out the returns after investing in a particular scheme.

• To quickly access your funds for a shorter term, consider options with higher liquidity, such as stocks. 

• Portfolio diversification is another important factor for consideration. In high-return and low-risk options, you could consider spreading your investment across different plans.

• Tax deductions are also applicable to specific schemes or investment plans; take this factor into consideration while making the final decision. 

• Choose reputable providers to ensure that your investment is stable and secure. 

• Assessing and rebalancing your portfolio will make space for smart decisions and provide good returns. 

Conclusion

High-return, low-risk investment plans offer numerous benefits, such as compounded interest, steady returns, and tax deductions. Many of these schemes also provide advantages like high yields, attractive interest rates, and special offers for senior citizens. 

Some investment options, like gold, have no age or eligibility restrictions, while others, such as VPF, are specifically available to salaried employees. When investing, factors like portfolio diversification are crucial. A well-diversified portfolio helps you make informed decisions and can lead to positive returns.