It depends what reasonable return you are expecting with what kind of risk and time horizon for investment. Following options may be explored:
- Safe with around 6.5% annual returns, then go for bank FD. However, returns are fully taxable( net returns = 4.55% with 30% income tax)
- Safe with 7.6% annual returns, go for PPF. However returns are revised each quarter by Government and these are going down. Rarely beats the inflation.
- Reasonably safe with around 6–7% annual returns,go for investment in a liquid / short term debt mutual funds. These are tax friendly as long term capital gains are taxed at the rate of 20% with benefit of indexation.
- Risky with 12 – 20% annual returns, go for equity mutual funds. The risk is considerably reduced if invested for a longer period of time(5-7 years ). Tax beneficial as only 10% tax is administered on long-term capital gains( gains arising out of an investment of more than one year). There is no tax upto one lakh of capital gains.
- Moderately risky with around 10-15% annual returns,go for a Balanced mutual fund. Tax benefits are same as for equity mutual funds.