MIPs are also offered by mutual funds but they do not guarantee returns. They provide returns in the form of dividends which tend to be higher than bank FDs in the long term. However, there is an element of risk attached to a mutual fund MIP because it has a small exposure in equity. Since equity is less risky in long term, an individual who wants to stay invested for long and is not concerned about short term fluctuations could opt for this product. In addition, the monthly income is tax free as it is distributed as dividend.

Corporate FDs

Corporate FDs or company deposits like bank FDs offer fixed rate of returns but are riskier than bank FDs because they are not backed by the government, nor is the investment amount (to the extent of Rs. 1,00,000) protected under the Deposit Insurance Act, as in the case of a bank FD.

But before investing in a corporate FD it is important to look at the fundamentals of the company. Always check the credit ratings assigned to these FDs. Typically, look for a rating of BBB or above this.

With bank deposits offering rates in the range of 6-7 percent, customers are being lured by more attractive corporate deposits which are offering 8-11.5 percent. Unitech, a leading player in real estate, is offering 12 percent for a three-year deposit. Surya Roshni and Shriram Transport Finance are offering 11.5 and 10 percent respectively for a deposit of three years.