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Fixed income

Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year, and to repay the principal amount on maturity. Fixed-income securities can be contrasted with equity securities -- often referred to as stocks and shares -- that create no obligation to pay dividends or any other form of income.

In order for a company to grow its business, it often must raise money -- for example, to finance an acquisition; to buy equipment or land; or to invest in new product development. The terms on which investors will finance the company will depend on the risk profile of the company. The company can give up equity by issuing stock, or can promise to pay regular interest and repay the principal on the loan (bonds or bank loans). Fixed-income securities also trade differently than equities. Whereas equities, such as common stock, trade on exchanges or other established trading venues, many fixed-income securities trade over-the-counter on a principal basis.

The term "fixed" in "fixed income" refers to both the schedule of obligatory payments and the amount. "Fixed income securities" can be distinguished from inflation-indexed bonds, variable-interest rate notes, and the like. If an issuer misses a payment on a fixed income security, the issuer is in default, and depending on the relevant law and the structure of the security, the payees may be able to force the issuer into bankruptcy. In contrast, if a company misses a quarterly dividend to stock (non-fixed-income) shareholders, there is no violation of any payment covenant, and no default.

The term fixed income is also applied to a person's income that does not vary materially over time. This can include income derived from fixed-income investments such as bonds and preferred stocks or pensions that guarantee a fixed income. When pensioners or retirees are dependent on their pension as their dominant source of income, the term "fixed income" can also carry the implication that they have relatively limited discretionary income or have little financial freedom to make large or discretionary expenditures.

https://en.wikipedia.org/wiki/Fixed_income

The best way to maximise your real, post-tax fixed income gains

Fixed Income Investment Options​

  • EPF (Increase upto 12% of Basic)
  • PPF
  • NPS
  • Recurring deposits (isave ICICI, bigger deposit allowed)
  • Fixed deposits
  • arbitrage mutual funds
  • money market debt funds
  • gilt debt funds
  • short to medium-term bond funds
  • Bonds
  • Debentures (good option)
  • https://www.thefixedincome.com

PPF (Public Provident Fund)​

After 15 years

EPF Employee Provident Fund​

How to Get or Withdraw EPF Money After Resignation

Pension fund is a retirement savings plan where a portion of your salary is set aside for your future. The funds are managed by a trustee and typically paid out as a monthly pension after retirement. Provident fund is similar, but the entire balance is paid out as a lump sum, not as a monthly pension.

Income Tax on Pension: Is Pension Taxable? - Tax2win

Emergency Fund / War Chest / Contingency Kitty​

  • 30% should be parked in a savings bank account (other than primary account) for easy liquidity (50K)
  • 40-50% should be parked in two or three good liquid funds with insta-redemption facility (100K)
  • 20-30% should be parked in high credit quality money market, corporate bond or banking and PSU debt funds (50K)

For your ease of selection, Paytm Money has created filtered lists comprising of the above mentioned debt fund categories. These are under "Better than Savings Account", "Better than Fixed Deposit" and "High Quality Debt Funds" investment ideas

Long-term emergency funds​

This is where you save for large-scale emergencies like a major natural disaster or a sudden medical emergency. This fund should be invested in instruments that allow you to earn a slightly higher rate of interest but may take a couple of days to liquidate.

Short-term emergency funds​

This is the fund you rush to in cases of emergencies. Such a fund should offer little in terms of interest but allow immediate accessibility, which in case of extreme situations can suffice till you gain access to your long-term emergency funds.

https://www.paytmmoney.com/blog/emergency-funds

Retirement​

LIC PMVVY - Papa - 15 lakh (10 years) (expired)​

SCSS - senior citizens saving scheme - 30 lakh (8 years) - 8%​

  • only one time deposit
  • no partial withdrawal
  • This is allowed only after 1 complete year. After 1 year and before 2 years, 1.5% interest is deducted and the rest is paid out. After 2 years and before Maturity, 1% interest is deducted. After 3 years, premature closure is allowed without any deduction of interest. Use Form E as application for premature account closure.
  • After 5 years. You can extend it further by 3 years but submitting Form B.
  • An extension is allowed only once. (total time period - 8 years)

A 6% return from arbitrage fund is enough (5.37% post-tax) to beat the 7.75% bonds even without factoring in the one-lakh tax-free gains.

SCSS Interest Rate FY 2024-25: What can Senior Citizens get now? - The 1% News

Mis (Monthly Income Scheme) - Limit 9 lakh

Senior Citizen Savings Scheme (SCSS) - Interest Rate 2024, Tax Benefits, Eligibility, Rules and Opening SCSS Account

Senior Citizen Savings Scheme (SCSS) - Interest Rate 2024, Tax Benefits, Eligibility, Rules & Opening SCSS Account

Investment Options for Senior Citizens in India - 2025 edition

Mahila Samman Saving certificate - 7.5% 2 lakh​

Sukanya Samriddhi Yojana (SSY)​

  • Attractive interest rate of 8%, that is fully exempt from tax under section 80C.
  • Minimum Rs. 250 can be invested in one financial year
  • Maximum investment of Rs. 1,50,000 can be made in one financial year
  • If the minimum amount of Rs 250 is not deposited in any financial year , a penalty of Rs 50/- will be charged
  • Deposits in an account can be made till completion of 14 years, from the date of opening of the account
  • The account shall mature on completion of 21 years from the date of opening of the account, provided that where the marriage of the account holder takes place before completion of such period of 21 years, the operation of the account shall not be permitted beyond the date of her marriage
  • Passbook will be issued to customers
  • Withdrawal Facility
    • To meet the financial requirements of the account holder for the purpose of higher education and marriage, account holder can avail partial withdrawal facility after attaining 18 years of age
    • If the beneficiary is married before maturity of account, account has to be closed

Sukanya Samriddhi Account - Know Scheme Details & Benefits for Your Girl Child | HDFC Bank

NSC (National Savings Certificate) vs Post Office FD​

10 Lakh Investment 💰 #epmshorts - YouTube

Ep3- National Savings Certificate-7 Features |Should you invest?| Investing in Govt Schemes in Hindi - YouTube

Annuity​

  • Regular Pay Annuity Plan
  • Single Pay Immediate Annuity Plan
  • Single-Pay Deferred Annuity Plan

ABSLI Guaranteed Annuity Plus - Guaranteed Income for a Retired Life (Aditya Birla Sun Life Immediate)

  • Give ₹1 lakh/ month for 5 years and Get ₹ 4.58 lakhs every year till your life
  • 7.63%

Best Annuity Plans in India 2024

Annuity : Buy Best Annuity Plans in 2024

Guaranteed income with tax benefits: Top 5 annuity plans in India

Kisan Vikas Patra​

Ep 2 - Kisan Vikas Patra (8 Features) | Who should Invest? | Investing in Govt Schemes in Hindi - YouTube

Bajaj Finance FD / Bajaj Finserv FD​

FD interest rates up to 8.65% p.a. | Highest safety ratings | Bajaj Finance Fixed Deposit

Premature FD Withdrawal: Avoid Interest Loss - Bajaj Finance

The rate of interest offered on tends to be higher for longer tenures. An FD with a longer tenure is set to fetch you better returns than a shorter-term FD this is because of the power of compounding. As you can see, a 4-year FD can yield returns up to 8.05% p.a., whereas a 1-year FD would offer 7.40% p.a. which is lower than the former. Also, if you wish to prematurely withdraw your FD, you will be charged interest as per the rate on the day of opening your account for the actual period your account was open.

Premature Withdrawal of Fixed Deposit (FD) Online - Bajaj Finance

  • If there’s any unforeseen expense, you can withdraw the funds that you’ve parked in a fixed deposit before its maturity date. This is called the premature withdrawal of a fixed deposit. However, you can raise a request for premature withdrawal after three months from the date of acceptance of the deposit.
  • If you withdraw your FD after three months but before six months from the date of deposit, you’ll only get the principal amount. You won’t get any interest amount in such a case.
  • However, if you choose to prematurely liquidate FD after six months, the interest payable is 2% (per annum) lower than the interest rate applicable to a public deposit for the period for which it has run.
  • If no rate has been specified for that period, the interest rate payable is 3% (per annum) lower than the minimum interest rate at which public deposits are accepted by the NBFC.

Premature Withdrawal of Fixed Deposit (FD) Online - Bajaj Finance

Going for premature withdrawal of fixed deposit? Know which type of bank FD minimises loss on interest and penalty

Revised RateRevised Tenor (Months)PenaltyNet Maturity Value
PW in 5 months; 1% interest loss4%5₹ 1,01,667
PW in 5 months; same rate; 1% penalty on P+I7%5₹ 1,029₹ 1,01,888
PW in 37 months; 1% interest loss5.5%37₹ 1,18,344
PW in 37 months; same rate; 1% penalty on P+I7%37₹ 1,239₹ 1,22,620

Tax-Free Bonds (Tax Free Bonds)​

Tax-free bonds are fixed-income instruments, and as per section 10(15) of the Income Tax Act of 1961, any earnings from this bond are exempted from tax. These bonds usually have a maturity period of 10-20 years and provide a low-interest rate on those bonds.

Tax-free bonds are a type of fixed income investment where the interest paid to the bondholders is exempt from income tax. These bonds are issued by government entities like government companies, municipal corporations, public sector undertakings, and other infrastructure companies.

These bonds have been introduced in India to finance government and infrastructure projects, while also providing an investment option to individuals with a tax-saving benefit. Many states in India issue tax-free bonds for raising capital for infrastructure development.

Who issues tax-free bonds?​

Tax-free bonds are issued by entities that are backed, set up, or incorporated by the government to fund projects aimed at national development. These projects often involve infrastructure, housing, and urban development. In India, for example, the Power Finance Corporation Limited issues tax-free bonds to support the development of the power sector. Other common issuers include:

  1. National Highway Authority of India (NHAI)
  2. Power Finance Corporation Limited (PFC)
  3. Indian Infrastructure Finance Company Limited (IIFCL)
  4. Housing and Urban Development Corporation Limited (HUDCO)
  5. Indian Renewable Energy Development Agency Limited (IREDA)
  6. Rural Electrification Corporation Limited (REC)
  7. National Housing Bank (NHB)
  8. NHPC Limited (formerly National Hydroelectric Power Corporation Ltd.)
  9. NTPC Limited (formerly National Thermal Power Corporation)

These entities issue tax free bonds to raise funds for their respective projects, contributing to the nation's growth and development.

What are the common types of tax-free bonds?​

  1. Infrastructure bonds
  2. Housing bonds
  3. Power bonds
  4. Railway bonds
  5. Public sector unit bonds

How do tax-free bonds work?​

Investing in tax-free bonds just requires a Demat account, and investors can buy or sell these bonds on the stock exchange. They can also use online trading platforms like the one from Bajaj Financial Securities Limited (BFSL). The interest earned on these bonds is tax-exempt and is directly credited to the investor's bank account.

These bonds listed on the stock exchanges offer flexibility in terms of liquidity. Due to their tax-exempt status, tax free bonds usually face high demand and low supply, especially during the tax-saving season.

Factors To checklist before investing in tax-free bonds​

  1. Investment goals: Before investing in tax-free bonds, determine your investment goals, such as earning tax-exempt income, preserving capital, or liquidity.
  2. Investment horizon: Consider the duration of the investment and match it with your financial goals.
  3. Research: Thoroughly research the available tax-free bonds, including government bonds and municipal bonds. Compare interest rates, credit ratings, and other relevant factors to suit your investment goals.
  4. Brokerage: Choose a reputable stockbroker, such as a traditional broker or an online broker, who specialises in tax-free bond investments.
  5. Open a Demat and trading account: Open a Demat and trading account with the chosen broker. The process may require filling out an application and providing personal information.
  6. Purchase the bonds: Once you have selected a tax-free bond, decide on the number of bonds you want to purchase and complete the transaction through your broker.
  7. Risk management: Remember that tax-free bonds are subject to credit risk, market risk, and interest rate risk. Be aware of these risks and consult with a financial advisor on ways to minimise them.

What are Tax-Free Bonds: Features, Benefits & How to Invest

List of Tax-Free Bonds in India 2025