The Reserve Bank of India has cut interest rates three times this year (dropping the repo rate from 6.5% to 5.5%). Because of this – top banks like SBI and HDFC are lowering their FD rates too and now offering around 6.25% to 6.6% (July 2025).
With higher inflation in the market, the interest you earn from FDs is hard to save. And many individuals who rely on FDs for wealth growth are finding themselves in a difficult situation. To help you earn better returns, we’ve put together this guide with fixed return options other than FD.
What Are Other Alternatives to FD?
Simply said – Bonds. Here we will check out the several types of bonds in today’s Indian market that provide decent yields with manageable risk.
RBI Floating Rate Savings Bonds
Return: 8.05% (reset every 6 months)
What is it? A safe investment from the Government of India. The interest changes every 6 months based on average FD rates offered by big banks, plus a little extra (0.35%). It’s great for people looking for steady income without taking big risks.
Risk & Tax: Very low risk. Backed by the government. But the interest you earn is fully taxable.
Liquidity: For investors under 60, a 7-year lock-in period applies. Senior citizens, however, have more flexible premature redemption options, with specific lock-in periods determined by their age.
AA-Rated Bank and PSU Bonds
Avg. Return: 7.7% to 8.5%
What is it? These are bonds issued by well-known public sector companies ((like REC, PFC) or leading public banks. They raise money from investors and pay regular interest in return. The “AA” rating is given by agencies like CRISIL, ICRA, or CARE, based on the company’s ability to repay on time.
Risk & Tax: These bonds carry moderate risk – generally considered safe, though not completely risk-free. Ratings reflect strong repayment ability, but investors should still check the issuer’s background. The interest earned is fully taxable as per your income slab.
Liquidity: These bonds are listed on stock exchanges, which means you can sell them before maturity. However, getting the right buyer or price may sometimes take time, so it’s best to invest only if you’re okay with holding till maturity.
Corporate Bond Funds
Return: 7.98% to 9.16% (3-year annualised returns)
What is it? Corporate Bond Funds are mutual funds that invest mostly in bonds issued by companies. These companies borrow money from the fund and pay interest in return. The fund manager chooses high-quality bonds (usually rated AA and above) to balance safety and return.
Risk & Tax: These funds carry moderate risk. The returns can fluctuate due to interest rate changes or if a company delays repayment. However, the risk is reduced as your money is spread across many bonds.
- If held less than 3 years: Taxed as per your income slab.
- If held more than 3 years: Earlier taxed at 20% with indexation; check latest rules as tax norms have changed for debt funds.
Liquidity: They’re quite flexible. You can withdraw anytime, and money usually comes to your account within 1–2 working days. Some funds may charge a small exit load if you redeem early.
Summary Table:
Investment Option | Returns | Risk & Tax | Liquidity |
RBI Floating Rate Savings Bonds | 8.05% (reset every 6 months) | Very low risk; backed by the Govt. Interest is fully taxable. | 7-year lock-in for <60 yrs. Early exit allowed for senior citizens based on age. |
AA-Rated Bank & PSU Bonds | 7.7% – 8.5% | Moderate risk; interest is fully taxable as per slab. Issuer strength varies; check background. | Listed and tradable on exchanges, but finding the right price/buyer may take time. |
Corporate Bond Funds | 7.98% – 8.99% (3-yr annualised) | Moderate risk; returns may vary. Taxed as per slab (<3 yrs). Earlier 20% with indexation (>3 yrs). | Highly liquid; withdraw anytime. Funds settle in 1–2 days. Exit load may apply briefly. |
Want More From Your Savings? It’s All About the Right Mix
Fixed deposits are a solid option if you’re looking for safety and easy access to your money. On the other hand, bonds and debt mutual funds offer better returns with only a little more risk. You don’t have to choose one over the other. A balanced mix of FDs and bonds can offer both stability and growth.
Disclaimer: Investments are subject to market risks. This content is for educational purposes only and should not be taken as financial advice. Please do your own research or consult a professional before making any investment decisions.
FAQs
What is the difference between a corporate bond and a fixed deposit?
A corporate bond is like lending money to a company, they promise to pay you interest and return your money later. It can be traded before maturity and usually gives higher returns, but with some risk. A fixed deposit is a safer, fixed-return product from a bank, but cannot be traded.
How can I invest in bonds online in India?
You can invest in bonds online through the internet by completing KYC and placing buy orders on authorized websites or exchanges. Just like buying something online, you choose a bond, pay through your account, and it gets added to your investment profile.
What happens if a company defaults on its bond payment?
If a company defaults, it may delay or stop paying your interest or principal. You might get your money back through a legal process, but it can take time. Unlike FDs, bonds don’t come with deposit insurance, so some risk of loss is involved.
Can senior citizens invest in bonds for regular income?
Yes, many senior citizens choose bonds that pay interest regularly, like government or PSU bonds. These can be a good way to earn predictable income in retirement, especially if they don’t want to take stock market risks.
Are bond returns taxable like FD interest?
Yes, the interest you earn from bonds is taxed just like FD interest – as per your income tax slab. If you sell a bond before it matures and make a profit, that’s called capital gain, and it’s also taxable depending on how long you held it.
