Best Fixed Income Investment Options in India

I have lost count of the number of queries I have received about the best fixed income investment options. I have refrained from writing about this mostly because I firmly believe that “nobody ever became a millionaire by investing in fixed deposits”.

 

Yet, people get fascinated by 8% over 7.75%. If you are used to investing in stocks or even mutual funds then there is nothing in it really! Be that as it may, I think everyone should invest some portion of their savings in risk free fixed income investment options.

 

Nevertheless, after endless suggestions, I finally decided to do a post on this so believe me when I say this. If you don’t find it here – It’s probably not the best when it comes to fixed income investments.

 

Typically fixed income investments refer to those wherein the amount of cash to be received in future is pre-set and safe. These include government and corporate bonds, saving bank account deposits, corporate deposits, national saving certificates, and Public Provident Fund (PPF).

 

While bank fixed deposits is by far the most popular investment choice, in the post below I will cover some other options available for urban investors. I will be covering:

 

Bank fixed deposits,

Company deposits and

Corporate bonds.

Bank FDs: The biggest benefit is that returns offered by fixed deposits are guaranteed and do not carry market risks. In fact the only risk here is in the very remote possibility of the bank itself becoming bankrupt. Banks give fixed interest returns on deposits ranging from 15 days to 5 years and give you higher interest returns compared to a regular saving account.

Company Fixed Deposits (FDs) vs. Non-Convertible Debentures (NCDs) – Difference

Safety: NCDs are secured instruments where lenders can claim if the company fails to repay whereas Company FDs are unsecured and more risky.

Liquidity: NCDs are traded on exchanges. NCDs give investors the option to sell their units back to the issuer after a specific period. On the other hand, Company FDs are not traded on exchanges.

Tax Considerations

Interest earned from fixed deposits and corporate bonds and deposits is not tax-free and is taxed as per the investor’s tax slab. Some banks offer “Tax-saver Fixed Deposit” in which money invested is locked-in for at least 5 years. This is the minimum time-requirement to qualify for the deduction. The maximum amount allowed as deduction is Rs.1.5 lakhs.

 

The government at times allows some companies to issue tax-free bonds for retail investors. This is mostly when the proceeds are being utilized for some purpose of national interest like building infrastructure (infra-bonds) etc.

[Source: http://www.blog.sanasecurities.com/best-fixed-income-investment-options-in-india/]