Why do people invest their surplus money in real estate and gold? Yes, it is the most lucrative, highest return option. And that is because these two – realty and gold moves with inflation. If inflation is up, the price of these two is also up and ideally, when cost comes down, rates of these two should come down too, but it does not; the correction is always minor.

And these two are the most popular because there is no other investment option which gets adjusted with inflation. Fixed deposits or bonds or PPF and other popular avenues of investment do not move with inflation and that, in an economy where costs are ahead of all returns, becomes a self-defeating option.  There is no hedge today apart from gold and realty. With CPI hovering over 6% and FDs giving an interest rate of around 5% and with neither inflation expected to come down any time soon nor FD rates expected to increase in this fiscal, its time to look at other options too.

Many might not agree but Govt Bonds are looking like a good option. With interest rate linked to NSC, altered every 6-months, these have a floating interest rate. Returns will always be higher than FDs but remember, the lock-in is for 5 to 7 years.

Then there are the Non-Convertible bonds or NCDs, available from the secondary market directly. The rate of interest hovers between 6.5 to 7% and on some, even 9.5 to 10%. Here, the higher the return, the higher is the risk; so best to keep an eye on the AAA rating.

And if you are a senior citizen (over 60 years), the Post Office Senior Citizen Savings Scheme is good, with current interest rate at 7.4%, paid every quarterly. The upper limit is Rs.15 lakhs and one has the option of closing the account after 5 years.

One can also look at PSU Bond Index funds – these come for a tenure of 5-years and assure a return of 6%, with benefits of long term capital gains tax though there is no regular income trickle from these.

Debt mutual funds are another option – functions like an FD but is more liquid as one can get out at any point of time. Here too, there will be no regular income coming in but the money will have rock solid security as the mutual fund invests only in AAA-rated PSU bonds.

These are currently the best options for those looking beyond the stock market, realty and gold investments. But the underlying thumb rule for all these – look for only short term as the cycle is set to turn from next fiscal and interest rates are set to increase then. Also remember, either the FD rates will go up or inflation has to come down – so best to invest in schemes which move in tandem with time and gives more liquidity.