Top Fixed Income Funds for Risk-Averse Investors in 2024

What are Fixed Income funds?

• 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 funds.
• Whether you’re a seasoned investor or a beginner, understanding the basics through fixed income funds definition can provide valuable insights and help you make informed decisions.

What is Fixed Income Meaning?

• 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.
• Fixed income broadly refers to those types of investment security that pay investors fixed interest or dividend payments until their maturity date.
• At maturity, investors are repaid the principal amount they had invested.
• The two most common categories of fixed-income securities are government and corporate bonds.
• Because they are often backed by the issuing organization, fixed-income securities are regarded as one of the safest fixed income fund options in India. 

Why should you Invest in Fixed Income Instruments?

• Every investor has different needs. For example, a twenty-four-year-old with an excellent career and no particular financial obligations would want to allocate a significant amount of his/her income to long-term, high-growth investments.
• But not everyone can afford to take such risks. For example, a pregnant woman could want a guaranteed corpus at the end of 15 years to fund her child’s higher education. Investment options that may provide set returns are necessary in order to meet these requirements. This is where fixed-income funds can help.
• Fixed-income assets are a viable alternative for portfolio diversification for investors with a higher risk appetite.
• Simply put, including fixed-income funds in your portfolio can be helpful in balancing the risks associated with equity investments.

Types of Fixed Income Funds 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 funds or types of fixed income securities. 

Bank Fixed Deposits

Fixed deposits with banks are one of the best investment ideas,  offering safety and substantial returns in India. With tenures spanning 7 days to 10 years, they assure low-risk investments. While requiring a modest minimum investment of Rs. 1000, these deposits generously do away with an upper investment boundary, 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. Fixed deposits provide stability and guaranteed returns, making them an attractive option for those seeking a low-risk investment avenue.

Real estate-backed Fixed Income Products

• One of the safe investments with high returns in India is real estate structured debt, providing fixed-income prospects backed by secured real estate assets. They are fixed income products investment vehicles that provide investors with fixed-income returns through investments in real estate assets.  
• It is one of the best short term investments and the best investment plan with high returns in India.
• The underlying assets in these products are typically real estate properties or mortgages secured by real estate. Via Assetmonk, you can invest with Rs. 10 lakhs and get an assured IRR of 17 percent.

Public Provident Fund (PPF) 

• PPF is one of the fixed income funds in India. It has consistently remained a favored investment option since it is a long-term, government-backed investment instrument offering returns that 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.
• Investing into PPF necessitates a minimal investment of ₹500, while the ceiling is set at ₹1.5 lakh per year with stable returns, thus it is considered a lucrative investment option  for those inclined towards low-risk avenues.

Monthly Income Plans

• Another excellent possibility is MIP, which is a noteworthy fixed-income fund. The policyholders of this hybrid mutual fund, which is predominantly focused on debt, get monthly dividends.
• However, because they depend on the overall performance of the fund, the returns from MIPs are not guaranteed and are vulnerable to changes in the market. MIPs have become very popular among investors who are risk averse because they provide an alluring way to fight inflation while exposing oneself to little risk.
• The yielded returns, which are within the range of 11% and 14%, are higher than those offered by traditional Deposits (FDs).
• A further benefit is that there is no lock-in period or maximum investment restriction, which gives investors more flexibility.

POMIS

• The Post Office Monthly Income Scheme (POMIS) emerges as  a low-risk government-backed fixed income scheme offered by the Indian Postal Service. 
• With a 7.4% interest rate, it offers liquidity after a year, though early withdrawals (1-3 years) face a 1% penalty.
• If you’re someone who doesn’t like to take a lot of risks and look for steady returns over a period of 5 years, POMIS could be a part of your investment plan.

• Monthly interest is taxable, but exempt from TDS, maintaining ease of access.

Mutual Funds

• Mutual funds are one of the best fixed income schemes in India, that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities.
• The typical lifespan of these funds is three to five years, though this might vary. Notably, the entry point for investment varies, catering to a range of preferences, while the upper investment limit remains unrestricted. 
• Mutual funds are a well-liked option for both beginners and seasoned investors since they provide a convenient and relatively low-risk way to invest in India’s financial markets.

Senior Citizen Savings Scheme

• The Senior Citizen Savings Scheme (SCSS) emerges as a prominent and beneficial fixed-income 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.  
• 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. 

Government-Backed Investment Schemes

Pradhan Mantri Vaya Vandana Yojana (PMVVY) 

• It is a government programme that the Life Insurance Corporation of India (LIC) administers. Its goal is to provide social security to people 60 years of age and older, protecting them against interest income reductions brought on by adverse economic conditions.
• Notably, the current year’s investment cap for this programme was increased from the previous INR 7.5 lakh to INR 15 lakh.
• This arrangement stands out because it assures a fixed pension. For a period of 10 years, the rate of return is assured to be 8% annually. The annual interest rate is 7.40%.

Sukanya Samriddhi Yojana (SSY)  

• This small savings programme, launched as part of the “Beti Bachao Beti Padhao” initiative, aims to uplift and educate girls. It is accessible from birth until a girl turns ten and has an attractive 8.1% interest rate as well as tax advantages.
• 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. For 2023–2024, the interest rate is 8%.

Pradhan Mantri Jan Dhan Yojana (PMJDY)

• In the event of unforeseen events, account holders are entitled to a Rs. 1 lakh accidental insurance coverage as well as a Rs. 30,000 life insurance cover.
• An overdraft facility of up to Rs. 5000 is extended to account holders, applicable to a single account per individual. 
• Applicants have easy access to insurance and pension plans. Interest can be earned by account holders on their deposited money. Direct benefit transfers are available to scheme beneficiaries. It provides a 4% interest rate.

 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. Over a period of 112 months, the amount invested in the plan doubles.
• The certificate can be transferred from one person to another and from one post office to another. Individuals can add nominees to the system. After 30 months have passed since the certificate’s issuance, individuals may also cash it in.

Atal Pension Yojana 

• APY operates on the principle of regular contributions by participants, resulting in a pension payout upon retirement.
• The design of the plan ensures individuals consistently save and invest, creating the foundation for a reliable income stream during retirement. Individuals between the ages of 18 and 40 are eligible to enroll in APY, and they must make consistent contributions for a minimum of 20 years.
• It’s important to understand that higher contributions result in larger pension payouts, improving the financial support available during retirement, even though the required contributions are intended to be affordable.

Benefits of Fixed Income Funds

Steady Income 

Regular interest payments offer a steady flow of income. Those who are retired or seeking a steady source of income may find this income to be particularly beneficial.

Capital Preservation 

Fixed income funds, as compared to stocks or other equity investments, provide a high level of capital preservation. At maturity, the principal usually gets returned, lowering the risk of loss.

Diversification 

Fixed-income funds can play a vital role in diversifying an investment portfolio. They typically have a lower correlation with equities, which can aid in lowering the volatility of the entire portfolio.

Risk Management 

Fixed-income funds have a range of risk profiles, so investors can select ones that suit their level of 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. Therefore, fixed-income risk management is very crucial.

Tax Benefits

Tax benefits are offered by certain fixed-income funds or investments in fixed income examples, such as municipal bonds, by way of tax-exempt interest income. Investors who are in higher tax brackets may find this to be especially advantageous.

Factors to Consider Before Investing in Fixed Income  

Interest Rate Risk       

Securities with fixed incomes or plans with fixed incomes are susceptible to changes in interest rates. Existing bonds typically lose value as interest rates increase. Think about the current interest rate environment and how it might affect your investments.

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.

Diversification

To reduce the risks connected with particular securities or industries, build a diversified fixed income portfolio. By investing in various fixed income security types, issuers, and maturities, one can achieve diversification.

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.

Liquidity

Consider the liquidity of the fixed-income fund, as it affects your ability to buy or sell the security at fair prices. While less liquid investments may need to be held until maturity, highly liquid securities can be traded with ease.

Why Choose Commercial Real Estate Structured Debt?

Investing in Commercial Real Estate Structured Debt offers several advantages. Firstly, it provides investors with fixed income and regular interest payments throughout the term of the investment. Secondly, this investment avenue is secured by the underlying real estate assets, minimizing the risk of default. Lastly, structured debt investments often have a relatively short investment timeline, providing investors with the flexibility to reinvest their funds or diversify their portfolio more frequently.

Conclusion

There is no denying that our current financial situation is unstable. As we’ve seen, compared to many other common investment options, fixed iincome funds provide a higher rate of return that is guaranteed. They are therefore a wise addition to your portfolio if you want to ensure all-weather durability.

In a well-diversified investment portfolio, fixed income funds and plans provide benefits for income, stability, and risk management. By understanding the different types of fixed income funds, evaluating risks, and considering key factors, investors can make informed decisions to meet their financial goals. To evaluate your situation and choose the best fixed-income investment strategy, don’t forget to speak with a financial advisor. 

Assetmonk is one of the most notable alternative investment platform in India that provides access to fixed-income funds through real estate structured debts. Assetmonk offers a fixed-income investment product called Signature Series B, With a minimum investment  of 10 lakhs and an assured IRR of 17 percent, Assetmonk provides exclusive and tailored investment options to its valued clients. Additionally, investors may also be eligible for a potential tax benefit of up to Rs. 50,000. Incredible, right? 

Related Articles

1. How To Invest 10 Lakhs Rupees For Monthly Income 

2. Best Investment Options in India to get Higher Returns 

FAQS

Q1. What happens to fixed-income funds when the stock market crashes?

A.  Fixed income funds are considered a safer investment option. When the stock market crashes, their market value rises. During prolonged stock market crashes, highly rated bonds and government securities continue to be a safe haven. However, if the economy enters a recession, sub-investment grade bonds may increase the risk of default.

Q2. Are fixed income funds liquid?

A. Yes. The majority of fixed-income funds are very liquid. High liquidity instruments include treasury bills, debt funds, government bonds, etc. There are tools like FD, RD, etc., that can be used in an emergency. Premature withdrawal, however, lowers their returns.

Q3. How to invest in fixed-income in India?

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

Q5.  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.