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Rate of Interest on Different Investment Plans in India

Savings are frequently not enough to guarantee financial security and achieve your financial objectives. Comprehend the purpose and goals of investing, as well as how to determine the rate of return on investments.

  • 3,210 Views | Updated on: Jan 11, 2024

Considering the inflation rates, investment is not an option but a necessity. Nowadays, savings are often insufficient to provide financial security and fulfill your financial goals. Investing refers to allocating the assets to create wealth and increase the value of your savings.

The corpus created can be of many uses, such as purchasing a gadget, planning a vacation, saving for your children’s higher education or marriage, or setting up a retirement plan. But before you begin investing, one has to consider various essential factors such as risk appetite and interest rate on investment.

So let us understand the meaning and objectives of investment, how to calculate the rate of interest on investment, and what are the options with the highest rate of interest on investment in India.

What is Investment?

Purchasing assets to generate income or appreciation (increasing the value of an asset) is called investment. Investing can be done in broadly two kinds of assets: Financial and Non-financial assets. Non-financial assets hold physical value, such as real estate, gold, machinery, oil, etc. Financial assets consist of cash, stocks, bonds, and bank deposits. Financial assets are usually easier to sell than non-financial assets and are considered more liquid.

All investors want to invest in the best option with minimum risk and the highest rate of interest on investment. But this seems a little challenging as the returns are directly proportional to the risk involved. Hence, you must explore all the market investment tools and choose the right fit.

Factors to Consider Before Investing:

  • Budget
  • Expected returns
  • Liquidity
  • Time horizon
  • Volatility
  • Risk involved
  • Financial goals
  • Taxation
  • Rate of interest on investment

Rate of Interest on Investment

The periodic receipt of inflows on the investment tools you select, such as bonds, equity, government securities, etc., is known as the interest rate. But how to calculate the rate of interest on investment? The rate of interest on investment can be calculated by multiplying the simple interest with 100 and dividing it by the product of principal and time.

Rate of interest = (Simple Interest × 100)/(Principal × Time)

One can choose the best investment tool from the following list based on the interest rate and other factors such as flexibility, returns, taxation, etc.

Best Investment options

Unit-Linked Insurance Plan (ULIP)

ULIP is an excellent investment choice that fulfils the dual objectives of insurance

and investment. It provides transparency, flexibility to pay premiums, and an opportunity to create wealth by investing. In addition, the interest rate is not fixed in ULIPs as the returns depend on the market performance.

Public Provident Fund (PPF)

A long-term tax-free investment, PPF is considered one of the most secure forms of investment as the money is locked in for 15 years. You can open a PPF account in your nearest bank or Post office. Additionally, you can extend the tenure of your plan for another five years. The interest rate on PPF for financial years 2018-2022 has been around 7.60%. You can also use the invested amount as security when applying for a loan.

Fixed Deposits

If you are scared of investing because of the market volatility, then Fixed Deposits (FD) might be the right fit for you. FD secure your money for a fixed tenure and provide better returns than any other savings account. In addition, you get guaranteed returns with a predetermined rate of interest. As a result, the interest rate in FD is quite attractive, ranging from 4.50% to 6% and around 7%(in case of senior citizens).

Mutual Funds

Mutual funds are one of the favourite forms of investment of the investors due to their lucrative returns and reduced risk. Professionals manage the portfolio to minimise your risk by diversification and generate higher returns. The investment can be equity-based, debt-based, or a balanced fund, a hybrid of debt and equity.

Investment involves risk, but you can minimize the loss and gain ‘risk-adjusted returns’ by choosing the right strategy. The rate of interest, tenure, and returns vary according to the different investment tools. Explore and compare all available options and invest in the plan that best suits your budget and financial goals.

A. couple of other rate of interest investment options:

1. Savings account – 4%

2. GSP – Please check this with the product team

3. Recurring Deposit – approx. 5% PA

4. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

5.Post Office Monthly Income Scheme

6. Senior Citizen Savings Scheme (SCSS)

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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