How Fixed Income Investments Can Help Build Wealth in 2024

What is Fixed Income investment?

• In this comprehensive guide, we will explore fixed income investments options in detail, covering their definition, types, benefits, and factors to consider before investing.
• We will also look at the best fixed income investment options in India in 2024.
• In today’s dynamic financial landscape, investors constantly seek avenues to diversify their portfolios and mitigate risk. One such investment option that offers stability and consistent returns is fixed income investments.
• Whether you’re a seasoned investor or a beginner, understanding the basics through fixed income investment definition can provide valuable insights and help you make informed decisions. So, let us first define fixed income investments to start with.
• Fixed income refers to a type of investment in which an investor receives a fixed or predictable stream of income over a specified period of time. This income is typically paid at regular intervals, such as monthly or annually, and the amount of the payments is predetermined at the time of the investment. 
• Some fixed income can be attained from equity and fixed income securities. You can also earn regular income from the stock market but the income is not fixed or pre-determined. So, we shall see some fixed income investment options in India below as we go.
• Fixed interest investments refer to a class of investment securities that generate regular income for investors in the form of interest payments. They are also known as fixed return investments.
• These investments typically involve lending money to a borrower (government, municipality, corporation, private enterprise, or financial institution) in exchange for periodic interest payments and the return of the principal amount at maturity.
• Because they are often backed by the issuing organization, fixed-interest investments are regarded as one of the safest fixed income investment options in India. 
• There are fixed-income securities examples like bonds, treasury bills, and municipal bonds, etc. 

Types of Fixed Income Investment options in India

• Are you looking to invest your hard-earned money or do wealth investment in the fixed income market because of its assured and fixed income? If yes, are you looking for fixed-return investment plans in India?
• Let us see some of the fixed income investment options in India or types of fixed income securities. 

1. Bank Fixed Deposits

• Fixed deposits with banks stand out as premier investment options, offering safety and substantial returns in India. With tenures spanning 7 days to 10 years, they assure low-risk investments.
• The minimum investment of Rs. 1000 accommodates various investors, and there’s no ceiling on the maximum investment. While the average return approximates 4% to 8%, their low-risk nature enhances their appeal.
• However, it’s important to note that the interest earned is taxable, and no specific tax benefits are associated. For individuals seeking secure avenues with commendable returns, fixed deposits with banks remain a top choice.

2. Real Estate-backed Fixed Income Products 

• Real estate-backed fixed income products are the best fixed income investment ideas or fixed interest investment plans. They are fixed income products investment vehicles that provide investors with fixed-income returns through investments in real estate assets.
• These products are structured in a way that allows investors to earn a predetermined interest rate or yield over a specific period of time.
• The underlying assets in these products are typically real estate properties or mortgages secured by real estate.Via Assetmonk, you can invest with just Rs. 10 lakhs and get an assured IRR of 17 percent.

3. Monthly Income Plans

• MIP, a noteworthy option for fixed-interest investment, stands as another valuable avenue. This hybrid mutual fund primarily oriented toward debt provides policyholders with monthly payouts.
• The returns from MIPs, however, are subject to market dynamics and aren’t guaranteed, relying on the fund’s overall performance.
• MIPs have garnered significant popularity among risk-averse investors, offering an attractive means to combat inflation while maintaining a low-risk exposure. The generated returns, ranging between 11% and 14%, surpass those of traditional Fixed Deposits (FDs).
• An added advantage lies in the absence of an upper investment limit and the absence of a lock-in period, enhancing flexibility for investors.

4. Public Provident Fund (PPF)

• PPF is one of the fixed income funds in India. It has consistently remained a favoured investment option for those inclined towards low-risk avenues. The returns are assured and can potentially range from 8.5% to 9.0%. Contributions to PPF are eligible for tax exemption up to Rs. 1,50,000 under Section 80C.
• Furthermore, PPF offers the added advantage of no upper limit on the investment amount, granting investors the freedom to allocate according to their financial goals. As of August 2023, the Ministry of Finance has maintained the existing interest rate of 7.10% per annum for PPF accounts for the current quarter. 

5. Voluntary Provident Fund

• The Voluntary Provident Fund (VPF) is another fixed-interest investment choice. It involves employees contributing to their provident fund account, making it ideal for risk-averse individuals aiming for long-term wealth.
• VPF’s key benefit is its low-risk nature, offering stability by investing in debt instruments that shield against market fluctuations. It’s also tax-efficient with deductions under Section 80C, optimizing tax liability. With a 8.15% interest rate, VPF further boosts savings.

6. Listed PSU Bonds

• Listed Public Sector Undertaking (PSU) Bonds are a robust fixed-income avenue for stable returns. Issued by government-owned companies and traded on stock exchanges, they offer transparent accessibility.
• These bonds assure regular coupon payments, appealing to risk-averse investors seeking stable income. Interest earned is generally taxed based on income slab, but Tax-Free Bonds issued by select PSUs offer tax-free interest, especially advantageous for higher tax brackets.

7. Senior Citizen Savings Scheme

• The Senior Citizen Savings Scheme (SCSS) emerges as a prominent and beneficial fixed-income investment avenue. One of the standout features of the SCSS is the guaranteed returns it offers.
• To invest in the SCSS, individuals aged 60 years and above, as well as those above 55 years who have opted for the Voluntary Retirement Scheme (VRS), are eligible. To become a participant, individuals need to make a minimum deposit of Rs. 1000, while the upper investment limit is set at Rs 15 lacs.  
• The SCSS provides a lock-in period of five years. Tax benefits further enhance the attractiveness of the SCSS. Under Section 80C of the Income Tax Act, investments made in the SCSS are eligible for tax deductions. This scheme operates with a duration of 5 years and boasts an interest rate of 8.2% p.a. for the fiscal year 2023-24.

8. Pradhan Mantri Vaya Vandana Yojana (PMVVY) 

• It is a government initiative administered by the Life Insurance Corporation of India (LIC). It aims to offer social security to individuals aged 60 and above, shielding them from potential decreases in interest income due to unfavorable economic circumstances. Notably, the investment ceiling for this program was elevated from the previous INR 7.5 lakh to INR 15 lakh in the current year.
• What makes this scheme noteworthy is its assurance of a fixed pension. The rate of return is guaranteed at 8 percent per annum for a span of 10 years. The rate of Interest is 7.40% p.a. 

9. Sukanya Samriddhi Yojana (SSY) 

• Launched under the “Beti Bachao Beti Padhao” initiative, this compact savings plan aims to nurture and educate girls. With an appealing 8.1% interest rate and tax benefits, it’s available from birth to a girl’s tenth birthday. The scheme requires a minimum INR 1000 deposit and has a cap of INR 1.5 lakhs this fiscal year.
• It remains active for 21 years or until the girl turns 18, reflecting the government’s commitment to securing girls’ future and education. The interest rate for 2023-2024 is 8%.

10. National Savings Certificate

• The National Savings Certificate (NSC) serves as a notable fixed interest investment avenue, offering a secure way to grow savings over time. Backed by the government, the NSC ensures guaranteed returns and provides tax benefits under Section 80C. With a fixed maturity period and competitive interest rates, it stands as an attractive option for risk-averse investors aiming to build a stable financial foundation.
• The scheme’s interest rate for 2023 is 7.70% per annum. The interest earned is aggregated yearly. The minimum contribution required for the plan is Rs.100, and there is no restriction on the amount that can be contributed. 

11. Pradhan Mantri Jan Dhan Yojana (PMJDY)

• Account holders are entitled to a life cover of INR 30,000 and accidental insurance coverage of Rs. 1 lakh in case of unforeseen events. An overdraft facility of up to Rs. 5000 is extended to account holders, applicable to a single account per individual.
• Applicants enjoy seamless access to pension and insurance policies. Account holders can earn interest on their deposited funds. Scheme beneficiaries are eligible for direct benefit transfers. It offers an interest rate of 4%.

12. Kisan Vikas Patra (KVP)

• The Kisan Vikas Patra certificate system is provided by Indian post offices. The current rate of interest for the Q2 FY 2023-24 is 7.5% p.a., compounded annually.
• The minimum contribution required for the plan is Rs.1000, with no upper limit. The amount invested in the plan doubles over 112 months. Individuals can add nominees to the system, and the certificate can be moved from one person to another and from one post office to another. Individuals may also encash the certificate after 30 months from the day it was issued.

13. National Pension System (NPS) 

• NPS provides individuals with a dependable monthly income during their retirement years. Individuals can engage in this scheme by contributing a nominal additional amount.
• Upon retirement, participants receive a lump sum payout along with a consistent monthly pension. For the fiscal year 2023-2024, the NPS interest rate ranges from 9% to 12%, rendering it a highly appealing investment avenue.
• This holds particular significance for individuals aiming to establish a robust financial foundation for their future and ensure a secure retirement phase.

14. Atal Pension Yojana 

• APY operates on the principle of regular contributions by participants, resulting in a pension payout upon retirement.
• The plan’s structure ensures that individuals consistently save and invest, paving the way for a steady income source during their retirement years. To become a part of APY, individuals aged between 18 and 40 can enroll, and they must contribute consistently for a minimum of 20 years.
• While the required contributions are designed to be affordable, it’s important to recognize that higher contributions lead to larger pension payouts, enhancing the financial support available during retirement.

15. Post Office Recurring Deposit

• One of the most favoured options among various post office saving schemes is the post office recurring deposit (post office RD). This scheme is particularly well-suited for individuals with modest investable funds, as it can be initiated with just Rs 10 per month and subsequent deposits in increments of Rs 5.
• The scheme imposes no upper limit on the invested amount. This scheme offers an annual interest rate of 6.50%. Moreover, it provides considerable flexibility—depositors can make partial withdrawals of up to 50% of the total balance after a year.
• Additionally, you have the option to extend the investment tenure by another 5 years upon its conclusion. The RD is also transferable between different post offices, supports joint account openings, and even permits the convenience of opening multiple accounts.

16. Post-Office Monthly Income Scheme (POMIS)

• Accessible to both resident individuals and minors aged 10 and above, this scheme allows multiple accounts while capping the combined amount at Rs. 9 lakhs. With a 7.4% interest rate, it offers liquidity after a year, though early withdrawals (1-3 years) face a 1% penalty.
• Monthly interest is taxable, but exempt from TDS, maintaining ease of access.

17. Post-Office Time Deposit

• Similar to a bank fixed deposit (FD), a Post Office Time Deposit Account (POTD) functions as a secure fixed income option. To initiate a POTD, a minimum deposit of Rs 200 is required, and there’s no upper limit on the deposit amount.
• The investment options span tenures of 1, 2, 3, and 5 years. With a minimum investment requirement of Rs 200 and no set maximum limit, this investment opportunity caters to a wide range of investors. The interest rates for different tenures are as follows:

Tenure	Interest Rates
1 year	6.90% p.a
2 year	7.00% p.a
3 year	7.00% p.a
5 year	7.50% p.a

Source: India Post

18. RBI Savings Bonds

• The RBI 7.75% Savings Bonds are fixed interest investment options or fixed income bonds India.
• They offer a fixed-income investment option with attractive returns. Backed by the Reserve Bank of India, these bonds provide a fixed interest rate of 7.75% per annum, ensuring a steady income stream.
• They are available for both individuals and non-resident Indians (NRIs) and have a tenure of 7 years. The interest earned is taxable, and there’s no maximum investment limit, making them a popular choice for risk-averse investors seeking stable returns.

19. Sovereign Gold Schemes

• Sovereign Gold Schemes are also fixed interest investment options. They provide a unique avenue for fixed income investment, allowing individuals to invest in gold bonds issued by the government.
• These bonds offer both capital appreciation and periodic interest payments, making them an attractive option.
• They have a fixed tenure of 8 years and can be traded on exchanges. Sovereign Gold Schemes offer a reliable alternative to physical gold investment, catering to those who seek stability and returns through a government-backed instrument.

20. Debt Mutual Funds

Debt mutual funds are another fixed income mutual funds investment option. They offer stability and potential returns by investing in a diversified range of fixed-income securities like government and corporate bonds.

The minimum investment for fixed income mutual funds varies but is generally accessible. Different categories of funds match various investment timelines. Returns stem from interest earned on securities, with typical yields ranging from 6% to 9%.

Minimum investment varies, and there’s no upper limit, providing flexibility based on financial capacity.

Comparison of Fixed Income Investment Options in India

But which are the best fixed income investments in India? Let us see the answer in this table below.

Investment Schemes	Returns	Yield	Security	Volatility Risk
Real estate structured debt	12-20%	12-20%	Secured by Real Estate	Low-None
Fixed Deposits	4-8%	Varies	Bank Guarantee	Low
RBI Savings Bonds	7.35%	7.35%	Backed by RBI	Low
Public Provident Fund	7.1%	Varies	Sovereign Guarantee	Low
Debt Mutual Funds	6-9%	Varies	Diversified Portfolio	Moderate to high
Sovereign God Bonds	2.5%	2.5%	Backed by Government	Moderate to high
Monthly Income Plans	11-14%	6-10%		Moderate
KVP	7.5%	Varies	Backed by Government	Low
NPS	9%-12%	Varies	Backed by Government	Moderate
APY	NA	NA	Backed by Government	Low
NSC	7.70%	Varies	Backed by Government	Low
SSY	8%	Varies	Backed by Government	Low
PMVVY	7.40%	Varies	Backed by Government	Low
SCSS	8.2%	Varies	Backed by Government	Low
Listed PSU Bonds	6-8%	Varies	Backed by Government	Low
Monthly Income Schemes	6-8%	7-9%	Diversified portfolio	Low
Post Office Time Deposit	6.90%	Varies	Backed by Government	Low
POMIS	7.4%	Varies	Backed by Government	Moderate
Post Office Recurring Deposit	6.50%	Varies	Backed by Government	Moderate
Pradhan Mantri Jan Dhan Yojana	4%	Varies	Backed by Government	Low
Sovereign Gold Schemes	Returns depends on price movement of gold	The yield depends on the price appreciation of gold over time	Backed by Government	Low

Benefits of Fixed Income Investments

Steady Income 

Fixed interest investments provide a reliable stream of income through regular interest payments. This income can be especially useful for retirees or individuals looking for stable cash flow.

Capital Preservation 

Unlike stocks or other equity investments, fixed income securities offer a high degree of capital preservation. The principal amount is generally returned at maturity, reducing the risk of loss.

Diversification 

Fixed-interest investments can play a vital role in diversifying an investment portfolio. They tend to have a lower correlation with equities, which can help reduce overall portfolio volatility.

Risk Management 

Fixed-interest investments offer varying risk profiles, allowing investors to choose options that align with their risk tolerance. Government bonds and high-quality corporate bonds are generally considered less risky, while high-yield bonds carry higher risk but offer higher returns. So, fixed-income risk management is very crucial.

Tax Benefits

Some fixed-interest investments or investments in fixed income examples, such as municipal bonds, offer tax advantages by providing tax-exempt interest income. This can be particularly beneficial for investors in higher tax brackets.

Types of Fixed Income Investments

Are there any fixed income securities in India? Yes! Below are types of fixed-return investments or fixed interest investment options in India. 

Retirement Plans

A retirement plan is an insurance and investment combo: Regular premiums build a corpus, used to provide annuity payments to policyholders. If the policyholder passes away, the beneficiary receives the assured sum. It ensures a reliable income source post-employment.

Government Bonds

Government bonds are some fixed income bonds. These are issued by governments to finance their activities. Government bonds are considered low-risk investments, as they are backed by the full faith and credit of the government.

Corporate Bonds

Corporations issue these bonds to raise capital for business expansion or refinancing existing debt. Corporate bonds are fixed bonds that typically offer higher yields compared to government bonds but carry a higher risk of default.

Municipal Bonds 

Municipal bonds are issued by state or local governments to finance public projects such as schools, highways, or hospitals. These bonds provide tax advantages to investors, as the interest earned is often exempt from federal and state income taxes.

Treasury Bonds 

These bonds are issued by the government and are considered the safest fixed income investments. Treasury bonds have longer maturities, typically ranging from ten to thirty years, and offer a fixed interest rate paid semi-annually.

Treasury Bills (T-Bills) 

T-Bills are short-term debt instruments issued by the government with maturities ranging from a few days to one year. They are considered risk-free and highly liquid, making them a preferred choice for investors looking for short-term investments.

Certificate of Deposit (CD) 

CDs are fixed interest investment options in India. They are time deposits offered by banks and financial institutions. They have fixed maturity dates and offer a higher interest rate compared to regular savings accounts. The longer the duration of the CD, the higher the interest rate.

Fixed Income Mutual Funds 

These collect capital from multiple investors to invest in a portfolio of fixed-income securities. Mutual funds offer professional management and allow investors to access a wide range of fixed-interests investments with varying risk profiles. These are fixed-return investments.

Risks of Fixed Income Investments

Credit Risk

 The risk that the issuer may default on interest payments or fail to repay the principal amount at maturity. Higher-yielding bonds or bonds from less creditworthy issuers carry a higher credit risk.

Interest Rate Risk

Fixed interest investments are subject to interest rate fluctuations. When interest rates rise, the value of existing bonds typically decreases, leading to capital losses.

Inflation Risk: Fixed interest investments may not provide adequate protection against inflation. If the rate of inflation exceeds the return on investment, the purchasing power of the income generated can erode over time.

Call Risk: Some fixed-income securities, such as callable bonds, give the issuer the right to redeem the bonds before maturity. This can be disadvantageous for investors if the bonds are called when interest rates are low, as it may force reinvestment at lower yields.

Factors to Consider Before Investing in Fixed Income

Credit Quality

Assess the creditworthiness of the issuer to evaluate the risk of default. Credit rating agencies provide ratings for bonds based on their analysis of the issuer’s ability to repay the debt.

Interest Rate Risk 

Fixed income securities or fixed-income plans are sensitive to changes in interest rates. When interest rates rise, the value of existing bonds tends to decline. Consider the prevailing interest rate environment and the potential impact on your investments.

Yield and Duration

Yield represents the return on investment, while duration measures the sensitivity of a bond’s price to changes in interest rates. Higher yields often come with longer durations and increased price volatility.

Diversification

Build a diversified fixed income portfolio to mitigate risks associated with individual securities or sectors. Diversification can be achieved by investing in different types of fixed income securities, issuers, and maturities.

Liquidity

Consider the liquidity of the fixed-income investment, as it affects your ability to buy or sell the security at fair prices. Highly liquid securities can be easily traded, while less liquid investments may require holding until maturity.

Bottom Line

Fixed interest investments or fixed income plans offer stability, income, and risk management benefits in a well-diversified investment portfolio. By understanding the different types of fixed income securities, evaluating risks, and considering key factors, investors can make informed decisions to meet their financial goals. Remember to consult with a financial advisor to assess your circumstances and determine the most suitable fixed-income investment strategy. 

Investing in fixed income can be a rewarding journey, providing a predictable income stream and safeguarding your capital in uncertain times. Start exploring the world of fixed-income investments today and build a strong foundation for your financial future.

Assetmonk is one of the most notable alternative investment platforms in India that provides access to fixed-income investments through real estate structured debts.  Assetmonk offers a fixed-income investment product called Signature Series A. It is a real estate structured debt product that is currently available. This product offers attractive returns with an assured IRR of 17.1 percent and the potential for a tax benefit of up to 50,000. And guess what? You can invest with just Rs.  lacs. Incredible, right? 

FAQs

Q1. What is an example of a fixed income investment?

A. Real estate structured debt is one of the best fixed-income investment examples. Real estate structured debts are fixed-income investments that are specifically designed for real estate investments. They are structured as debt instruments, meaning they involve a borrowing arrangement between a lender and a borrower, with the real estate asset serving as collateral for the debt.

Q2. What are fixed income products?

A. Debt funds, exchange-traded funds, and money market funds are the different types of fixed-income products.

Q3. How to invest in fixed-income India?

A. You can invest in fixed-income investments in India via real estate structured debts, FDs, and sovereign gold bonds.

Q4. Why invest in fixed income?

A. Fixed-income investing is a great way to earn consistent investment income with low risk. Fixed-interest investments provide stability and regular cash flow.

Q5. When should you invest in fixed-income investments?

A. Investors who are nearing retirement can depend on fixed-income investments to generate income. 

Q6.  How to invest 10 lakhs for monthly income?

A. You can invest 10 lakhs for monthly income via real estate structured debts. It can yield you an assured IRR of 17.1 percent, especially via credible alternative investment platforms like Assetmonk.