Fixed Income Securities - Types of Investments in India

Fixed income securities give guaranteed returns, which is why they are highly popular among conservative investors, looking for stable returns. Since these financial instruments offer guaranteed returns, they are latent to market volatility. Below is a list of the some of the popular fixed income securities in India:

Returns from fixed deposits are guaranteed, safe and higher than a savings account. Fixed deposits come with a lock-in period, where you can deposit your money for a tenure suiting your needs and preferences at an agreed interest rate that remains unaltered throughout the tenure.On the day you make the deposit, you get a certificate outlining the final maturity amount along with the applicable rate of interest and the tenure. Market fluctuations and extremities don’t impact the returns.

Bonds are debt instruments which are issued by the government and large companies to raise capital. As a debt instrument, bonds are basically loans taken by the issuing entity.In lieu of the borrowing, the bond issuer has an obligation to return the loan amount with interest. Usually, the principal amount is paid back at maturity. In the meantime, interests are paid at regular intervals.

1. Fixed maturity plans (FMP) Fixed maturity plans are close ended mutual funds with predetermined tenure. It means you can’t exit out of these funds before the end of the tenure or the lock-in period. Though the calculation of returns for FMPs is not as definite as that of fixed deposits, they are indicative.Since they invest in corporate bonds and government securities, the return at the end of the tenure is generally assured and predictable.
2. National Service Certificate (NSC) NSC, can be availed from any post office. You can buy an NSC in your name, jointly or even in the name of a minor. These certificates earn a fixed interest rate, which again is significantly higher than the returns on the savings account. NSCs come with two maturity periods – 5 and 10 years.

One can buy certificates worth as little as Rs.100. There is no maximum limit, and up to Rs. 1.5 lakhs amount of investment is eligible for tax benefits under section 80C of the Income Tax Act, 1961.Investing in fixed income securities keeps your investment guarded against market uncertainties. If capital protection is your goal, you can opt for investing in these financial instruments. Before investing in them, it’s important to know the lock-in period as liquidating them before the end of the tenure can attract a penalty.

Fixed-income securities are one of the safest and best investment options available in the market for steady returns. The rate of interest is fixed, which helps the investor to know the maturity amount at the end of its tenure.They have a very low risk, and the returns are comparatively less when compared to equities. However, the returns are guaranteed in spite of any fluctuation in the stock markets. This is what makes investments in fixed-income securities so attractive. Fixed-income securities like government bonds, treasury bills, gold bonds etc., have government backing. So, the chances of any payment default don’t arise.Fixed-income securities in India can help the depositor in saving taxes, as some of them are exempted from tax deductions. To save tax, one needs to choose the right fixed-income security and invest in it.There are different types of fixed-income securities like bonds, fixed deposits, debt mutual funds, public provident funds, senior citizen saving schemes etc. since there are so many investment options available, investors can choose and diversify their portfolios. This would help in securing the returns.

The fixed-income securities are issued by either the State Government or the Central Government. Such securities are popularly known as Government securities.The Government bonds are issued by RBI (Reserve Bank of India) on behalf of the Government.The corporate market, also referred to as the non-government sector market, consists of bonds which may be public sector unit (PSU) bonds, financial institution (FI) bonds, corporate bonds and debentures. These are issued by big corporate houses or other entities like private companies. By issuing bonds, large firms can finance their operations, which can help them grow and expand their business. In return, the investor gets higher returns than investing in the non-government sector market.

Fixed income security is an investment where a certain amount of money is paid in regular intervals. This amount can also be added to the principal amount and given back to the investor at the time of maturity. The rate of interest is fixed, and the investor is aware of the amount that will be received as interest.They are considered low-risk investments and generate a stable income for the investor. Once invested then factors like a high inflation rate, slow growth in the economy etc., will not impact the returns.Fixed-income securities that have high credit ratings are highly liquid. Such securities can be bought and sold easily in the secondary market. This makes it easier for an investor to exit anytime.
Government fixed-income securities like REC bonds, NHAI etc., help investors to save long-term capital gains tax under Section 54EC.There are a variety of fixed-income securities in which an investor can invest. This would helpin diversification.

Fixed-income securities are mostly available through money market mutual funds. They are issued by the Government, corporations, and financial institutions to raise debt. The public becomes the lender, and these entities become borrowers.

• Both equities and fixed-income securities help investors to reach their financial goals, yet they both are very different from each other.
• Equities generally consist of stocks, whereas fixed-income securities are mostly government or corporate bonds.
• Equities involve high-risk investments . They are preferred by people who have a high-risk appetite and want more gains. On the other hand, fixed-income securities involve very less risk and are suitable for investors who prefer to keep their investments safe.
• The returns on investing in equities are higher and are in the form of capital appreciation and dividends, whereas the returns in investments in fixed-income security investments are fixed and comparatively low.
• The equity market faces volatility many times. The prices of the stocks may fall down sharply depending upon certain factors like inflation, economic instability etc. Fixed-income securities are not affected by any factor and are not at all volatile. The investor knows the amount receivable at the time of maturity.
• Equities are traded only in the stock exchange , whereas fixed-income securities can be bought from primary or secondary markets.

Fixed-income securities such as treasury bills, certificates of deposit, commercial papers and other debt securities mature within 91 days. Such debt funds are liquid funds and do not have any lock-in period. To redeem these liquid funds, a request has to be submitted, and it is processed within 24 hrs on business days.These funds are highly liquid. They can easily meet the financial requirement of the investor as and when required. Fixed-income securities are one of the best forms of short-term investment schemes. Under this debt, funds and money markets are the most sought-after fixed-income securities.Since investments are made in high-quality fixed-income securities that have a short maturity period, the risk involved is less.

Fixed-income securities are considered to be a safe investment option. When the stock market falls, the market price increases. High-rated Government securities and bonds remain safe even if the stock market falls for a long period of time. However, sub-investment bonds may default if the economy hits a recession.

If inflation rises during the investment period of fixed-income securities, then it may impact negatively. For example, if a bond is bought for 5 years and the coupon rate is 6%. If inflation increases and becomes 9%, then the return on this investment would be - 3%.

Among money market instruments, are derivatives, bonds, and asset-backed securities. Bonds are the most popular sort of fixed-income security. They are issued by the Government and by companies to raise capital.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.