Usually, risk-averse investors have limited options in the markets. And those available usually offer relatively lower rates of returns. This segment of investors generally includes the retired, senior citizens, and those who need a regular fixed income.

   The current market volatility has increased the sphere of such investors. And most of those who previously used to swear by the stock markets are now opting for the fixed returns instruments.

   So, what are the options for the risk-averse investor?

   The present-day market conditions offer some very good options that can be tapped by these investors. They will do well to invest in these instruments. These instruments ensure safety of capital as well as offer decent returns. In some cases, they also come with tax advantages. All of these are positive factors. The only issue is an investor may miss out on the opportunity of 'making it big' when the markets bounce back. However, considering the present market and economic conditions, both domestic and global, this may take some time. The markets seem set to take time to recover and regain their upward momentum. Till then, they will continue to remain volatile.

Tax-free bond    

A popular option is the tax-free bond. Recently, tax free bonds were floated by the National Highways Authority of India (NHAI) and the Power Finance Corporation (PFC). The size of the NHAI bond issue was around Rs 10,000 crores, and it received subscriptions worth Rs 25,000 crores, while the PFC intended to raise Rs 4,033 crores and received subscriptions worth Rs 10,000 crores.

Fixed deposit    

Time-tested and an all-time favourite is the fixed deposit (FD) with banks. The FDs are offering rates of around 9-10 percent for tenures up to five years. As the interest rates are expected to come down soon, you should lock into the fixed deposits at the present high rates of interest.

   These deposits are safe, liquid and easy to operate. You can break the deposit any time by paying a small penalty. The deposits can be opened with small amounts. There is no upper limit. You can open a deposit with any bank. It is to be noted that the interest earned on a FD is taxable.

Post office scheme    

Another debt investment avenue is the post office scheme. These are managed by the post offices and are safe. Investors can invest in schemes meant for retiring employees. The investment limit is Rs 15 lakhs and the interest earned is 9 percent. The interest earned is taxable.

Other options    

Apart from these, you can invest in monthly income schemes. You can also invest in the Public Provident Fund. The investment limit here is Rs 1 lakh. However, the tenure is 15 years, and it is not liquid. The principal and interest earned are tax-free.

   Then there are the debt-based mutual funds. Debt funds invest in various government bonds, securities, corporate fixed deposits and debentures. Since the interest rates have gone up, debt-based mutual funds offer better returns. Liquid mutual funds are a good option for a short term, when you need to park some money for a short duration. On the other hand, if you are looking for higher returns go for balanced funds.

   The bonds offered a good rate of interest of 8.2 percent for 10 years and 8.3 percent for the 15-year schemes. There was a reservation for individual investors. The NHAI and PFC bonds together were an attractive combination of high post-tax returns - close to 12.01 percent for those in the 30 percent tax bracket, with top credit rating and an opportunity to lock-in for long tenors. Further, as they would be listed on the stock exchanges, they offer liquidity too. As the interest rates are expected to come down in the near future, the value of these bonds is bound to increase. More such bonds may be floated by the government in the coming months.

   Investors can lock in for longer tenures. With interest rates expected to fall soon, one should add long tenure bonds and long-term fixed deposits to the debt portfolio. These long-tenure bonds could give you the added benefit of capital appreciation. Bonds give you the twin advantage of interest rate plus capital appreciation. This is because they are listed and traded on the stock exchange, and therefore the price of a bond could move up or down depending on the interest rates. In case the interest rates fall, bond prices go up and you will benefit from capital appreciation.

 
   The capital appreciation depends on the duration of the bond. Prices of long-tenure bonds rise more than short tenure ones. The higher the duration of the bond, the greater the capital appreciation.

Infrastructure bond    

You can invest up to Rs 20,000 in these bonds and claim a tax deduction under Section 80CCF. If you are in the highest tax bracket, you can save as much as Rs 6,180 by investing in these bonds. The Rs 20,000 limit for investments in infrastructure bonds is in addition to the Rs 1 lakh tax deduction limit available under Section 80C.

   You can choose an issuer of these bonds based on the credit rating, interest rates offered and the financial credentials of the company. The issues have tenures of 10 years and 15 years. There is a buy-back option at the end of five years from the date of allotment. Liquidity comes from listing on the stock exchanges once the mandatory lock-in period of five years is over.