List Of Alternative Investment Options If You Want To Go Beyond FDs

KEY TAKEAWAYS

1. The blog introduces alternative investment options that offer potentially higher returns than FDs and also diversification benefits.

2. It highlights various alternative investment options such as corporate bonds, SDIs, fractional real estate, REITs, InvITs, and invoice discounting, explaining their mechanisms, returns, and taxation.

3. Corporate bonds are loans to companies with higher interest rates than FDs, and they can be invested in through SEBI-registered platforms.

4. Fractional real estate and REITs allow investors to own parts of real estate properties, providing rental income and dividends, while InvITs focus on infrastructure projects.

5. The article emphasizes the importance of understanding the risks and rewards of these alternatives, considering factors like minimum investment amounts, expected returns, and taxation implications to make informed investment decisions.

I am sure most of your financial conversations with parents, siblings or friends are often centered around traditional investment options like PPF and Bank FDs, right? Unfortunately, even at a time when we are seeing so many advancements and new ideas in various sectors like defense, technology, healthcare, fintech etc, it's fair to say that even in 2025, most of our money-related conversations still sound like those in the 1970s-80s era.

But wait, why are we suddenly saying all this? Well, let us straightaway address the elephant in the room. It is because of this old-school investment mindset that many investors' portfolios are limited to just FDs.

That is exactly where the role of alternative investments comes into the picture. With more and more regulations and guidelines developing in this segment, the horizon of alternative investments is gradually expanding, you, as an investor, can consider exploring these fixed-income options to go beyond the traditional FDs for your portfolio.

Beyond FDs: Alternative Investment Options That Can Help You Earn Earn Fixed-Income

1. Corporate Bonds

This is perhaps the most popular among the various alternative investment options in India, and the gradual roll out of regulations and guidelines by SEBI and RBI have been further strengthening this segment in recent years.

As per RBI’s Financial Stability Report, India’s overall bond market had already touched ₹226 lakh crore in size (around $2.6 trillion) in FY25, out of which corporate bonds accounted for a quarter of it, with over net outstanding ones being ₹53.6 lakh crore. The rest includes government bonds, treasury bills, and state development loans in India.

But what exactly are corporate bonds? Simply put, corporate bonds are loans that you give to a company in exchange for periodic interest payments and the return of your principal (the money you invested) when the bond matures at the end of the tenure. Interest rates on corporate bonds are generally much higher than fixed deposits of around 3%-7.5%.

You can invest in corporate bonds through SEBI-registered OBPPs (Online Bond Platform Providers) such as Grip Invest, Aspero, Wint Wealth, TheFixedIncome, etc.

Minimum Investment Amount: Rs 1,000

Returns: 9%-14%

Taxation: Rules vary for listed and unlisted bonds.

For listed bonds: STCG taxed as per your tax slab rate (holding period less than 1 year), LTCG taxed at 12.5% (holding period equal to or more than 1 year).

For unlisted bonds: W.e.f. July 23, 2024, all unlisted bonds are treated as short-term assets, regardless of holding period. So, they get taxed as per your applicable slab rate.

Also, 10% TDS on interest earned is levied on both listed and unlisted bonds.

2. SDIs (Securitized Debt Instruments)

Think of Securitized Debt Instruments (SDIs) like mutual funds, but for loans. Banks/NBFCs bundle multiple loans (like home loan, car loan or gold loan) into a single package and sell pieces of this package as tradeable instruments to investors.

Investors earn returns from the loan repayments, thus providing a steady income similar to interest earned on corporate bonds. You can invest in SDIs through SEBI-registered OBPPs like Grip Invest and Jiraaf. Note that in October 2022, Grip Invest had become the first platform to offer an NSE-listed SDI as an investment option in India.

Returns: 12%-15%

Taxation: Tax on interest income is taxed as per your applicable slab rate. TDS of 10% (w.e.f. 1st April 2025) is also deducted.

3. Fractional Real Estate (FRE)

As the name suggests, fractional real estate refers to partial ownership, where investors pool in their capital to invest in a physical property, with the generated rental income getting distributed to the investors in proportion to their original investment.

So basically, the investment mechanism of FREs is just like any other unregulated pooling of funds scheme. The asset management company sets up a SPV (Special Purpose Vehicle) to pool investor's funds. In the case of FREs, the SPV is usually a private limited company or it can be an LLP as well. The investors are given a combination of shares and compulsory convertible debentures (CCDs) in proportion to their investments.

You can start investing in fractional real estate through platforms such as PropertyShare, Claravest, WiseX, Fracspace, etc.

Minimum Investment Amount: Rs 1 lakh-10 lakh

Taxation: Check out this blog in which we had detailed out the various tax rules for fractional real estate:

https://blog.thealtinvestor.in/from-bonds-to-crypto-taxation-rules-for-alternative-investment-platforms#heading-fractional-real-estate-fre-platforms

4. REITs

Real estate investment trusts (REITs) are like mutual funds or ETFs, but for real estate. REITs give investors access to the benefits of owning high-quality real estate assets in small ticket sizes. They are listed on the stock exchanges and investors can buy REIT units just like they would buy shares of any listed company. REITs manage the portfolios of high-value real estate properties and mortgages. For instance, they lease properties and collect rent thereon. The collected rent gets distributed among shareholders as income and dividends later on.

You can start investing in REITs through platforms such as PropertyShare, hBits, Brookfield India ReIT, Mindspace Business Parks REIT, Nexus Select Trust, etc or investment apps like Groww and Zerodha.

Minimum Investment Amount: No minimum investment amount (you can start investing for as low as Rs 100-500 for one unit of the REIT)

Returns: 11%-16%

Taxation: Capital gains tax: STCG (≤12 months): 20%, LTCG (>12 months): 12.5% on gains above ₹1.25 lakh. Interest and rental income are taxed at slab rates, and dividend taxation depends on SPV's tax regime choice. Also, a 10% TDS on interest/rental income is levied if it exceeds ₹10,000.

5. InvITs

InvITs (Infrastructure Investment Trusts), in simple terms, are like specialized or sectoral mutual funds which pool in your money to invest majorly in cash-generating or under-construction infrastructure projects. Here, infrastructure assets can refer to capital-intensive projects such as dams, highways, railway projects, transformers, power grids, etc.

The main objective of InvITs is to open the doors for retail investors to access investment opportunities in infrastructure projects that were previously only available to large institutional investors.

For InvITs specifically, you can invest by buying and selling them in a similar manner to equities, since InvITs are listed on the NSE/BSE, where the units can be traded.

Here’s the list of SEBI-approved InvITs in India: https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=20

Minimum Investment Amount: No minimum investment amount (you can start investing for as low as Rs 60-90 for one unit of the InvIT)

Returns: 8%-15%

Taxation: Interest Income taxed as per your applicable slab rate. 10% TDS applies if total interest distributions exceed ₹10,000 in a financial year. Dividend Income (if the underlying SPV has not opted for concessional corporate tax under Section 115BAA), then dividends received by you are exempt; otherwise they are taxable at your slab rate. Also, 10% TDS applies on dividends above ₹10,000 per year

As far as capital gains are concerned, STCG (Holding ≤ 36 months) taxed as per your slab rate, while LTCG (Holding > 36 months) is taxed at 10% without indexation. Also, rental Income is taxed as per your slab rate with 10% TDS beyond ₹10,000 per year.

6. Invoice Discounting

Invoice discounting is a form of short-term borrowing in which a business can receive immediate cash by using its outstanding invoices/unpaid bills on delivered products, as collateral.

The businesses do so to quickly get cash for reasons such as: pay their own suppliers and employees, pay for fulfilment of other orders, or re-invest in the business to maintain growth momentum.

Here’s an example of invoice discounting to help you understand it better:

For example, a ‘company X‘ sold Rs 1 lakh worth of goods to Flipkart on May 5th, 2023, and they are expected to receive the payment in 60 days, i.e. by July 5th, 2023, as per Flipkart's payment cycle.

However, company X is currently facing a cash crunch as it needs to fulfil other ongoing orders, pay its own suppliers and also cover staff salaries. But the payment from Flipkart will take another 60 days, so to solve this cash crunch, company X approaches an invoice discounting platform to get finance against the Flipkart invoice.

The invoice discounting platform showcases this deal on its platform for a fixed rate of return. Investors check out the deal and collectively pool in Rs 90,000 and pay company X, who is satisfied with the arrangement. And then 60 days later, when Flipkart releases the payment to X, they repay the full Rs 1 lakh to investors in proportionate amounts against the Rs 90,000 they invested at a discounted rate against the Rs 1 lakh bill. This arrangement allows investors to earn some decent returns in a short period of time.

But what’s the catch here? Well, firstly, invoice discounting as an investment vehicle itself, is unregulated in India, which means it does not fall under the purview of SEBI or RBI, making it a high risk investment.

You can invest in this alternative investment option through invoice discounting platforms such as altGraaf, Amplio* (Formerly Tyke Invest), BetterInvest, Ultra (Formerly Tap Invest), etc. But always keep in mind that invoice discounting is a high risk product, primarily because of its unregulated nature, and the ‘high returns’ it promises always come with ‘high risks’ as well.

Minimum Investment Amount: Rs 10,000-Rs 25,000

Returns: 10%-15%

Taxation: Returns earned are added to your total income and then taxed as per your slab rate.

*Amplio is offering regulated invoice discounting through its tie-up with an RBI-registered NBFC (Gangabase Barter Pvt. Ltd.)

Conclusion

While traditional investment options like FDs have been a staple in many portfolios, exploring alternative investment options can offer potentially higher returns and diversification benefits.

From corporate bonds and SDIs to fractional real estate, REITs, InvITs, and invoice discounting, each option comes with its own set of risks and rewards. It's crucial for investors to thoroughly research and understand these alternatives, considering factors such as minimum investment amounts, expected returns, and taxation implications. By doing so, investors can make informed decisions that align with their financial goals and risk tolerance, ultimately enhancing their investment portfolios beyond the conventional choices.

Please note that this is an opinion blog and not official research advice. This blog aims to promote informed decision-making and does not encourage or discourage you from investing in any deals, asset classes or platforms.