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Fixed income securities

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"Fixed income" is synonymous with fixed deposits. Naturally, many investors look for investments that offer a consistent flow of income. After all, everybody loves the idea of earning a predictable return on their investment.

In that case, fixed income provides a wide range of investment options, from Treasury bills to corporate bonds, and the Indian market offers superior returns compared to bank deposits.

Beyond bank deposits-

Our love for ‘fixed income’ is why nearly 50% of Indians still invest in fixed deposits. Fixed-income securities in India are financial instruments that guarantee a fixed income and carry a fixed rate of return and maturity period. These are issued by both, public and private businesses, and investors lend money to these organizations in exchange for fixed income in the form of interest payments.

In India, fixed-income securities like bonds offer guaranteed, market-proof returns in exchange for investors lending money to governments and companies. These loans come with fixed interest rates and maturity dates, giving investors predictable earnings. This makes them popular for those seeking low-risk investments, with even additional yields on top. Though they lack the growth potential of equities, fixed-income securities like these provide stability and income security, attracting cautious investors and diversifying portfolios.

low risk

Types of fixed income securities

Debt Mutual Funds

These funds pool investors’ resources to invest the corpus in various debt instruments such as bonds, T-bills, and other fixed-income securities.

Exchange-Traded Funds (ETFs)

Bond ETFs invest in various debt securities available in the market, generating regular and fixed returns. They guarantee stability as returns are provided periodically at a fixed rate of interest. Fixed-income securities are popular among retired and risk-averse investors who prefer stability over gaining market advantage.


Bonds are fixed-income securities that are popular worldwide and offer pre-determined returns. They are a standardized and convertible type of loan that is raised for a particular purpose by the government or a business.

Government Securities

Governments issue securities like T-bills and Treasury bonds to raise money.  They offer a fixed rate of return and are considered to be low-risk investments.

Corporate Bonds

Companies issue corporate bonds to raise money for a variety of uses. They offer a fixed rate of return and are considered to be a low-risk investment.

Commercial papers

Companies issue commercial papers, which are short-term debt instruments, to raise money temporarily. They offer a fixed rate of return and are considered to be a low-risk investment.

Few fixed-income securities in India

National savings certificates

These are savings certificates you can buy from the nearest post office. They have a fixed maturity period of 5 years and a fixed interest rate. Apart from guaranteed returns, they also offer tax exemptions for investments up to Rs 1.5 lakh under Section 80C of the Income Tax Act.

National Pension Scheme

The Government of India launched a retirement benefits program that provides participants with a steady income stream in their post-retirement years. Depending on their preferences, investors can divide their money between government securities and stocks.

Pradhan Mantri Vaya Vandana Yojana

A scheme offering regular monthly pensions to senior citizens, safeguarding their investments from declining interest rates. Open to individuals aged 60 and above with a tenure of ten years. 

Things to consider before investing 

Capital gains tax: Investors are required to pay taxes on the capital gains from their fixed-income securities. Long-term investments are subject to a 20% tax rate after adjustments are made for indexation, while short-term capital gains are taxed based on the investor's income.

Mutual fund strategies: Mutual funds have different investment strategies based on their investment horizon. Short-term investments typically focus on money market instruments and debt funds, while longer-term investments often involve investing in ETFs.

Liquidity: Fixed-income securities are generally very liquid, allowing investors to access their funds whenever they need them.

Not-so-secret weapon of smart investors

Like any investment, fixed income comes with its advantages and drawbacks:

ReturnsPredictable income streamLower potential returns than equities
RisksLower volatile than stocksInterest rate risk, credit risk, liquidity risk
Portfolio diversificationA balanced, riskier investmentIt may not provide enough growth for some investors
Tax advantagesMay offer tax-exempt or tax-deferred optionsReinvested income can be taxed at higher rates
Maturity Know exactly when you'll receive your principal backEarly withdrawal can incur penalties
Inflation protectionSome types offer protection against inflationNot all fixed-income instruments provide inflation protection

Estimated five-year return on a fixed-income investment in India, using a 10 lakh example

Investment TypeAverage Annual Return5-Year Return (Post-Tax)
Government Bonds (5-year maturity)6.50%Rs. 2,96,069
Corporate Bonds (AAA-rated, 5-year)7.50%Rs. 3,48,503
Debt Mutual Funds (Short-term)5.50%Rs. 2,45,568
National Savings Schemes (NSC)6.80%Rs. 3,89,493 (tax-exempt)

Who should invest in Fixed income securities?

Fixed-income bonds are ideal for risk-averse investors looking for stable investments. They are perfect for individuals who want to avoid the volatility of the stock market and want a predictable return on their investment.

Additionally, fixed-income securities can be a good option for investors looking to diversify their portfolios. They can provide a stable flow of dividends during market downturns when other assets may not be yielding adequate returns.

Retirees or older individuals can also consider investing in fixed-income securities as an alternative source of investment.

However, it's important to note that investing in fixed-income securities may reduce the real value of the money invested, as no adjustments are made against inflation. 

Chilling with fixed-income

Fixed-income securities are a type of investment that provides a stable return on investment, making them a popular choice for risk-averse investors. While they may not provide the same potential for high returns as other investments, they offer a predictable income stream and can help diversify a portfolio. However, it is essential to consider the risks involved in fixed-income investments, such as the potential for inflation to reduce the real value of the money invested and the lack of market advantage in the event of a hike in average interest rates.

‘Patience wins the race with fixed-income investments, so add consistent returns and minus the market drama’.

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