A fixed-income security is a debt instrument issued by a government, corporation or other entity to finance and expand their operations.

Fixed-income securities provide investors a return in the form of fixed periodic payments and eventual return of principal at maturity.

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Why invest in fixed-income securities?

Fixed-income securities can be an important part of a well-diversified portfolio. For many investors, particularly retirees, fixed-income investments are a secure, low-risk way to generate a steady flow of income. As long as they are held to maturity, fixed-income securities will provide a guaranteed return on your investment, with payments known in advance.

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What are some examples of fixed-income securities?

Since the focus of Fixed Income Investments is primarily Safety, Liquidity and better Returns, we have shortlisted some popular schemes that are offered by the Government of India or PSUs.

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1) Senior Citizen savings Scheme

Senior Citizens Savings Scheme (SCSS) is a government-backed savings instrument offered to Indian residents aged over 60 years. The deposit matures after 5 years from the date of account opening but can be extended once by an additional 3 years. Maximum investment available is 7.5 lakhs in single name and 15 lakhs in joint name. The interest is issued quarterly and taxable as per tax slabs. Current rate of interest is 7.4%p.a. payble quarterly and is the highest interest rate among the various small saving schemes in India. 

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2) Public Provident Fund

This is one of the most popular schemes for long term investment that is backed by the Government of India. It has attractive interest rates that are also fully tax exempt. The investment duration is for 15 years with the option to extend the same in blocks of five years. There is taxation benefit under Section 80C of the Income Tax Act where interest is tax free. The minimum investment through out the year is INR 500 and maximum investment amount in a year is INR 1.5 lakh. Current rate of intererst is 7.1% p.a compunded annually. Rate changes quarterly on the basis of changes in Small Savings Interest rate by Goverment.

3) Capital Gains Bonds (54 EC Bonds)

54EC bonds or Capital gains bonds, are one of the best way to save long-term capital gain tax generated through sale of real estate properties. These bonds are specifically meant for tax exemption on these gains. Interest on 54EC bonds is taxable. These bonds come with a lock in period of 5 years (effective from April 2018) and are non transferable. Maximum investment available of Rs 50 lakhs in a financial year. Current rate of interest is 5% payable annually.

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4) Pradhan Mantri Vaya Vandana Yojana (PMVVY) 

The PMVVY is a pension scheme for senior citizens that comes with guaranteed returns on monthly, quarterly, half-yearly or on an annual basis for a period of 10 years.  Unlike in the older version of PMVVY, in the Modified PMVVY, the interest rate will keep varying depending on the financial year (FY) in which the investment is made. The government will declare the PMVVY interest rate at the start of each FY.

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5) Sukanya Samriddhi Yojana (SSY)

SSY-The is a small deposit scheme that was launched as part of the campaign “Beti Bachao Beti Padhao” and is meant for the girl child. The scheme can be availed for your daughter anytime between her birth till the time she turns 10. The minimum deposit amount for the scheme is INR 1000, with the upper limit of 1.5 lakhs during the ongoing financial year. The account can remain operative for 21 years from the date of opening or till the time of the girls marriage post 18 years. To meet the financial requirements of the account holder for the purpose of higher education and marriage, account holder can avail partial withdrawal facility after attaining 18 years of age. current rate of int is 7.6%

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6) Sovereign Gold Bond( SGB)

SGBs are government securities denominated in grams of gold. They are substitures for holding of physical gold. The bond is issued by RBI on behalf of Government of India.  The risks and costs of storage are eliminated. It carries sovereign guaranted on payment of interest. Guaranteed interest of 2.5% p.a on the face value paid semi-annually. SGBs are tradable on exchanges if holds in D'mat form, can be used as collateral for loans ,tenure is of 8 years but exit option available after 5th year. Interest is taxable as per tax slabs but maturity value is totally taxfree  after completing 8 years

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7) RBI Bonds

These are bonds that are issued Government backed entities and have very low risk of defaulting. The income generated by means of interest on these bonds is completely exempt from Income Tax. The capital gains, in case of any, are, however, taxable.

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8) Debt Mutual Funds 

Debt mutual funds invest money in a mix of debt and or fixed interest earning instruments/ securities. These fixed income securities include Government bonds ,Govenment securities , treasury bills,  NCDs, corporate bonds , money market instruments etc. Debt funds are less risky compared to equity mutual funds and have the scope of delivering better returns as compared to traditional savings products with better tax implications.

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Other Fixed Income Investment Avenues in India

Listed below are some of the Fixed Income Investment Options available to investors.

• Bank Fixed Deposits

• Post office Schemes like MIS 

• Kisan Vikas Patra (KVP)

• National Savings Certificates (NSC)

• Life Insurance Policy

• NPS & ATAL Pension Yojana

• VPF- Voluntary Provident Fund

• Post office savins account / Time Deposts etc