No money doesn't grow on trees, but the right savings and investment can help it grow. The pandemic has triggered a great deal of uncertainty and risk aversion in the way we invest our hard earned money. A lot of us want to turn away from high risk instruments or lower our exposure to them, while increasing our low risk investments. Debt instruments are considered safe and include bonds, debentures, certificates of deposits, debt funds and fixed deposits among others.
Sure keeping your money in the bank is safe, but your saving account will give you a mere 3.5%. One way to diversify your corpus is bank FDs and corporate FDs. While Bank FDs offer you return of 5-5.5%, corporate FDs will help you earn higher returns, while continuing to maintain a low risk levels. A corporate FD is similar to a bank FD, but gives you a better return with low risk. Since most of the instruments are rated, corporate fixed deposits have a high degree of safety level. Corporates offer returns of 7.5%-8.5% for a 1 year to 5 year deposit and 8-9% on a cumulative basis.
You need to consider 3 parameters
Some of the key risks however to keep in mind while investing must not be ignored. Make sure that the company has been paying regular interest to its shareholders. The balance sheet of the companies has shown a consistent track record of profits at least for 3 yrs. With the number of start-ups entering the market rising, make sure the company has been in existence for at least the last 5 yr. Ensure they are offering realistic returns (2-3% more than a bank FD). Do not fall prey for those companies which are offering very high returns, where the risk-reward is unrealistic. Make sure these companies are listed on the stock exchange, companies which are listed will be well regulated. Do not place all your eggs in 1 basket, diversify so as to limit your risk. Do not opt for very long tenures with lock-ins, invest for 1-2 years and take stock of performance of timely payments annually. Don't go by misleading ads always calculate the CAGR and compare with others.
Finally, is the timing right for your investment. Choosing to invest when interest rates are high means returns of your FD will be the highest, but also account for inflation. Systematically and periodically investing 10% of your income can prove to be a good strategy in the initial stages of your life and gradually increasing this ratio to 40% as you grow older can be a good strategy in the long run. Investing ultimately is laying out your money now, to get more in the future.