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Fixed Income Securities in India

Fixed income securities in India are an important investment source for investors.

In recent times, bonds have given stable returns on account of RBI's efforts through OMO's, Op Twist, GSAP, etc.

We hereby discuss the salient aspects of such securities in this article. Let's begin!

What is Fixed Income?

Fixed income securities in India are a type of debt instrument. Moreover, these debt instruments pay a fixed interest income to the investors.

Investors already know the maturity value in advance. Most suited for the risk-averse investors.

Some of the examples of these securities thus are government bonds, T-bills, Fixed Deposits, Repurchase agreements, etc.

Governments back such bonds, subsequently making it a safe option as default chances are nil.

Also, these options are becoming popular among investors as they are safe and tax-efficient.

Why Should You Invest in Fixed Income Securities in India?

Here are some of the reasons that you should consider,

1. Financial objectives: We all have some goals for our lives. Moreover, these goals can be thus short, medium, or long-term in nature.

Equity funds are long-term in their outlook. Short, medium and long-term are for debt funds.

2. Low Risk: Various investors have different appetites. For example, a retiree will have a lower risk tolerance in comparison to a young investor.

Moreover, fixed income options have a much lower risk associated with them in comparison to equity instruments.

Best suited for investors with low to moderate risk profiles.

3. Highly Liquid: As we all know, emergencies can arise at any time in life.

Fixed income thus helps in building a contingency fund.

It can help in tough situations like loss of employment, sudden big expenses.

4. Provides Regular Income: There may be some investors, like the retirees, who will need regular income to support them each month.

Moreover, you may be looking to take a sabbatical break, and you would need regular income.

Funding the college-going children is also made possible through fixed income options.

5. Diversification: Asset allocation using diversification can help in achieving optimum risk exposure.

A balance of equity and fixed income in your portfolio can help you manage risks, and get good returns.

What is the role of debt funds?

Over the past two decades, mutual funds have captured the attention of retail investors.

However, a good majority of the investors still go for traditional investment.

Debt mutual funds can be an ideal option for investors looking for fixed-income solutions.

Here are the compelling reasons why,

1. Potential for good returns: Debt funds are known to invest in debt and money market securities.

Moreover, their yields are very good and hence preferred.

Interest rates and credit risks also affect debt funds.

Investors should thus be very careful in choosing the right schemes as per their risk tolerance.

2. Tax-efficient for longer investment duration:

Capital gains for funds held <3 years, taxed as per income-tax bracket.

While capital gains for funds held >3 years, taxed at 20% after indexation benefits.

3. Liquid: No lock-in period in open-end debt funds, hence highly liquid.

However, some schemes may charge an exit load, vis a vis partial or full withdrawal in the exit load period.

What are the potential benefits of Fixed Income Securities in India?

Subject to your investment goals and risk appetite, fixed income options can offer a range of benefits,

1. Diversification of portfolio: Fixed income has lower risk as compared to stocks.

It is because fixed income instruments are less reactive to macro-economic issues like recessions or geopolitical situations.

Allocating a part of your portfolio to fixed-income securities can help you offset losses in market swings.

2. Capital is safe: The absolute value of your investments is safe when you invest in such securities.

Moreover, the securities which assure a return of principal can be a good option for people closer to retirement as it provides assured income.

Investors not willing to face huge losses can go for this.

However, be careful with inflation that can reduce the value of your investment.

3. Steady Income: Fixed income can help you in generating a steady income.

These are risk-free instruments and pay a certain sum of money in the form of coupons to bond investors.

4. Returns: Some fixed income schemes offer higher returns.

Investors can thus evaluate the risks and go for them.

Top Performing Fixed Income Investments in India


% p.a.
PeriodTax StatusInvestor
National Savings Certificate IX (NSC) (10 yrs)
GovernmentSmall Savings Schemes8.80120 monthsTax SavingAll
Public Provident Fund (PPF)
GovernmentSmall Savings Schemes8.80180 monthsTax SavingAll
Bajaj Finance Ltd.

Bajaj Finance Ltd.
FinanceCompany Deposits8.7536 Months to 60 MonthsTaxableAll
Deutsche Bank
Deutsche Bank
Foreign BanksBank Deposits8.25DB Tax Saver Deposits (5 years)Tax SavingGeneral
GOI Savings Bonds
GOI Savings Bonds
GovernmentBonds8.006 yearsTaxableAll
Bharat Co-operative Bank
Bharat Co-operative Bank
Cooperative BanksBank Deposits7.901 year to 3 yearsTaxableGeneral
Bharat Co-operative Bank
Bharat Co-operative Bank
Cooperative BanksBank Deposits7.90Above 5 yearsTaxableGeneral
PNB Housing Special Deposits (upto Rs. 5 Cr.)
PNB Housing
GovernmentCompany Deposits7.5544 monthsTaxableAll
Indus Ind Bank
Indus Ind Bank
Indian Private Sector BanksBank Deposits7.50Indus Tax Saver Scheme (5 year)Tax SavingGeneral
Punjab National Bank
Punjab National Bank
Public Sector / Nationalized BanksBank Deposits7.20PNB Tax Saver Fixed Deposit Scheme - 5 years to 10 yearsTax SavingGeneral

Risks associated with Fixed Income Securities

Here are some of the risks,

1. Interest rates: Bond prices fall when interest rates go up.

Thus, your investment value too falls.

Bond prices are sensitive to interest rate movements.

2. Inflation: Inflation is a big problem for bonds.

If the rate of inflation beats the monthly income, it will lower its purchasing power.

3. Credit risk: In addition to interest rate risk, you also have to bear the credit risk.

Thus, it means, you will have to negotiate the fact if you invest in corporate bonds, the issuer may default on his/her obligation owing to any company crisis.

4. Liquidity risk: It may also happen that being an investor in these bonds, you may wish to sell it off but are not able to find a suitable buyer.

Thus, leading to liquidity risk.


Financial planning has a bigger scope. Fixed income instruments play an important role in portfolio diversification.

They are a relatively stable income source and offer a range of benefits to investors.

These funds also cater to short, medium, and long-term investment needs.

One must consider adding these to their portfolio to enhance their returns and balance them. Happy investing!

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