Are high yield bonds worth the risk when govt backed schemes offer up to 8.2% returns? Expert explains argument

A recent post by Kanan Bahl, founder of Fingrowth Media, has sparked fresh debate on whether investors should prioritise high-yield instruments or stick with safer, government-backed savings schemes.

Bahl questioned the logic of chasing headline returns without factoring in taxation and risk. “Why fall for low-yield policies and high-risk bonds when sovereign-guarantee backed schemes offer up to 8.2% annually, some even tax-free?” he said, pointing to instruments such as the Sukanya Samriddhi Yojana (SSY) and the Senior Citizen Savings Scheme (SCSS), both currently offering 8.2% per annum.

His core argument revolves around post-tax returns. For example, a bond offering 11% interest may appear attractive, but for an investor in the 30% tax bracket, the effective return drops to around 7.7% after tax. This brings it closer to returns offered by government-backed schemes, which carry significantly lower risk.

Small savings rates: A competitive alternative

For the April–June 2026 quarter, small savings schemes continue to offer a wide range of returns:

Post Office Savings Account: 4.0%
5-Year Recurring Deposit (RD): 6.7%
1-Year Time Deposit: 6.9%
2-Year Time Deposit: 7.0%
3-Year Time Deposit: 7.1%
5-Year Time Deposit: 7.5%
Senior Citizens Savings Scheme (SCSS): 8.2%
Monthly Income Scheme (MIS): 7.4%
National Savings Certificate (NSC): 7.7%
Public Provident Fund (PPF): 7.1%
Kisan Vikas Patra (KVP): 7.5% (doubles in 115 months)
Sukanya Samriddhi Yojana (SSY): 8.2%
Mahila Samman Savings Certificate: 7.5%

These rates, notified by India Post, apply to the first quarter of FY 2026–27 and are reviewed by the government every quarter.

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Among these, SSY and SCSS remain the highest-yielding options at 8.2%, while NSC, KVP, and time deposits offer competitive mid-range returns. PPF, despite a relatively lower rate of 7.1%, continues to be attractive due to its tax-free status and long-term compounding benefits.

Tax efficiency and safety vs higher risk

Bahl also highlighted the Employees’ Provident Fund (EPF), which currently offers around 8.25% annually. While not a post office scheme, EPF is widely regarded as a disciplined, long-term wealth-building tool for salaried individuals.

The broader takeaway is the importance of evaluating risk-adjusted returns. High-yield corporate bonds often come with credit risk, liquidity constraints, or issuer uncertainty. In contrast, small savings schemes are backed by the sovereign, offering capital protection along with predictable returns.

He also cautioned against traditional insurance-cum-investment products, which tend to deliver lower returns compared to standalone investment instruments.

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Balancing returns with financial goals

Financial planners note that while government schemes offer safety and tax advantages, they may lack liquidity and flexibility compared to market-linked products. Therefore, allocation should depend on an investor’s goals, time horizon, and risk appetite.

As interest rates remain relatively stable and market conditions uncertain, the comparison highlights a key investing principle: higher returns often come with higher risk, and once adjusted for taxes, the gap between risky and safe instruments narrows considerably.

With small savings schemes offering up to 8.2% backed by government guarantee, Bahl’s message is clear—investors should look beyond headline returns and focus on post-tax, risk-adjusted outcomes before making decisions.