Many investing portfolios include fixed-income assets because they provide a consistent and predictable return. Instead of risky Equity Investments, fixed-income securities offer a more secure investment with guaranteed returns. Here are the fixed-income securities in India:
- Government Bonds
Also known as Sovereign Bonds, these are debt securities issued by central or state governments to meet fiscal demands. Investment options include Government Securities and Treasury Bills. G-Secs are long-term Bonds that have maturities of five to 40 years. They provide semi-annual interest payments and are regarded as highly secure due to government backing.
Treasury or T-Bills are short-term securities with 91, 182, or 364-day maturity dates. They are issued at a discount to their face value and do not include interest payments. Instead, the difference between the purchase price and face value at maturity represents the investor’s returns.
- Corporate Bonds
These are debt securities issued by businesses to raise funds for various purposes, including expansion, operations, and refinancing current debt. Due to the risk associated with business creditworthiness, Corporate Bonds often provide higher returns than G-Sec Bonds.
- Municipal Bonds
Local governments or municipal companies issue Municipal Bonds to support public infrastructure projects such as schools and hospitals. These Bonds frequently come with tax benefits, and depending on the Bond and jurisdiction, investments in Municipal Bonds may provide tax-free interest income.
- Asset-Backed Securities
They are financial instruments backed by assets, such as Loans, leases, Credit Card debt, or receivables. Their cash flows are utilised to pay out interest and principal to investors. ABS allows you to invest in diverse assets without directly owning them.
- Debt Mutual Funds
Debt Mutual Funds combine investor assets and invest in Bonds, T-bills, and other fixed-income securities. They offer diversity and competent management, making them a desirable choice for retail investors. Their types include Liquid Funds, Short-Term Funds, and Long-Term Funds.
- Commercial Paper
Large firms issue Commercial Paper to cover their short-term liquidity needs with maturities ranging from seven days to one year from the issue date. Their maturity date should not exceed the date until the issuer’s credit rating is valid.
- Certificates of Deposits
Banks issue CDs and promise the return of the principal at a certain interest rate. They mature between seven days and one year and are available in dematerialised form.
- National Savings Certificates
NSCs are savings instruments issued by the Government of India and available at post offices. They feature a five-year fixed maturity length and a guaranteed interest rate. You can claim benefits up to Rs. 1,50,000 under Section 80C of the Income Tax Act. The interest earned is taxable but also eligible for a deduction.
Conclusion
Fixed-income securities are an important part of a well-rounded investing portfolio because they provide stability, consistent income, and reduced risk. They are a safe investment option for conservative investors seeking secure returns and those eager to diversify their portfolios.
