Fixed Income Bonds

Investors can rest easy knowing there is no dearth of investment options at their disposal. They can choose from different assets and markets and invest their capital based on their risk profile and expectations of return at a particular point in time. Debt instruments are among the most popular in India, amounting to a massive 67% of the GDP (gross domestic product).

This number is a function of several factors, but it’s the fixed income security’s risk profile that Indians find most attractive. They offer relatively low risk while helping investors earn fixed returns. Debt makes a good addition to all types of portfolios, which helps bring more investors and, by extension, more liquidity to the market.

While increased inflow due to low risk has benefited all debt instruments, the bond market has seen terrific traction. It has grown at a 14.68% CAGR in the past 10 years, and is now worth a whopping $2 Trillion.

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What are Fixed Income Bonds?

Fixed income bonds offer investors the opportunity to earn fixed income at regular intervals. Bonds are a contract between an investor and an organisation, such as a company or the government. The contract states specifics such as the total amount borrowed, the life of the bond, and the coupon rate. The contract legally binds the borrower to make regular payments to investors in return for the capital, called coupon or interest payments.

Note that the interest is always calculated on the bond’s face value, regardless of the bond’s market price. If you purchase a bond with a face value of ₹100 and a 5% coupon rate, and the bond’s market price drops to ₹95, you’ll still receive ₹5 as interest payment.

Fixed-Income Bonds Explained

Fixed-income bonds are an investment approach. It is about preserving income and capital. The investments include money market funds, CDs and government and corporate bonds. Fixed-income bonds offer a steady source of income without low-level risks.

Investors receive fixed interest in the form of coupon payments. You get the interest payments semiannually and the principal amount at maturity. Fixed-income investments offer a wide slew of potential benefits to investors.

Some of them include capital preservation, income generation and more. In addition, companies often issue fixed-income products to investors to raise capital.

Corporations and governments issue bonds (fixed income investments product) to raise funds. It helps them finance operations and fund projects. There are primarily two common types of bonds- Corporate and Government.

Different bonds serve different purposes. Their maturities and face value amounts also differ. Face value is what the investor receives when the bond matures. Government and corporate bonds are commonly listed with USD1000 face values.

Credit Rating Fixed Income Securities

Credit ratings form a part of the grading system at credit-rating agencies. The agencies assess whether or not corporate and Government bonds can repay the loans. Thus, diverse bonds have different credit ratings based on the issuer’s financial viability. Therefore, investors should check their credit ratings to determine the credit risks before investing.

Companies can issue an investment-grade bond or a non-investment-grade bond. Stable organisations, for instance, opt for investment-grade bonds. It has a low risk of default and low-interest rates. Non-investment grade bonds, on the contrary, have low credit ratings because the corporate issuer is likely to default on its interest payments.

As a result, investors need a higher interest rate from non-investment grade bonds. It compensates them for taking the higher risk these fixed-income securities pose.

Note: Bond ratings reflect the creditworthiness of Government or corporate bonds. The ratings are disclosed by credit rating agencies. They evaluate a bond issuer’s financial strength and capacity to repay the bond’s principal and interest according to the contract.

Types of Fixed-Income Bonds

Fixed-income securities help companies receive guaranteed returns on investments. The investors can calculate the final value of the fixed-income securities before it is issued.

Thus, it is quite a popular choice for securing returns on investments without risks and with additional yields.

The different types of fixed-income bonds are:

1. Exchange-Traded Funds

These funds are about investing in the debt securities available in the market. The debt securities generate regular and fixed returns at a fixed interest rate. The investor receives the returns periodically. Hence, these investments guarantee stability.

Fixed-income securities are perfect for anyone looking for stability instead of market advantage.

2. Debt Mutual Funds

Debt mutual funds offer a higher return as compared to what standard savings schemes provide. You can invest the funds in money market instruments, government bonds, and other fixed-income securities.

Note: Investing in debt funds is complex at times. Hence, investing in the leading debt funds is always recommended for optimal outcomes.

3. Bonds

Companies issue fixed-income bonds to fund daily operations. It is one of the most common fixed-income insecurities and acts as a liability for the issuing firm. Thus, the investor must redeem the bond when the company generates enough revenue.

4. Money Markets Instruments

Money market instruments act as investment avenues at a fixed interest rate. Thus, these fall under the fixed-income securities category. You can get it for a short period. Also, the maturity period doesn’t exceed a year.

5. Bank Deposits

You can avail of bank deposits for short- and long-term fixed-income solutions. Fixed deposits are quite secure. This is because you cannot withdraw the money before its maturity. However, premature withdrawal is possible under specific circumstances, but one needs to pay the penalty.

6. Public Provident Fund

PPF or Public Provident Fund is exempted from tax deductions. Thus, it is beneficial to invest in these fixed-income securities. It also provides a higher interest rate than conventional savings schemes. Moreover, it is a Central Government sponsored scheme and has zero risks.

7. Senior Citizen Savings Scheme

Senior citizens of India can get financial security through fixed-income bonds. Anyone over 60 years old is eligible to invest under this scheme. The interest rate, however, is fixed by the Ministry of Finance.

8. Bonds of Listed Public Sector Units

Leading public sector units of India offer these fixed-income securities. The funds yield high returns and are associated with minimum risk.

Benefits of Fixed Income Bonds

Fixed income securities in India, such as bonds, offer a range of benefits that help investors hedge their risk and diversify their portfolios. Following are some key advantages that fixed rate bonds offer.

✓ Low Risk: Fixed income securities are one of the safest investment instruments. They typically aren’t as volatile as other high risk asset classes like equities. This makes them a good fit for investors with a low-risk profile.

✓ Provide Regular Income: Fixed income funds allow investors to earn regular income. The coupon payments, or interest payments on the bonds, are paid periodically. As investors inch closer to retirement and rebalance their allocation from high to low risk assets, debt can offer value through stable, periodic returns.

✓ Risk-free Returns: When you invest in government bonds, the risk of default is negligible. Given that G-secs and other fixed income instruments issued by governments are risk free, the risk-return tradeoff can be appealing to many investors.

✓ Can Diversify Your Portfolio: Diversification is key to building an investment portfolio. For instance, it’s easy to see how an all-equity portfolio can put investors at great risk. Instead of building a concentrated portfolio, adding debt to the asset mix can bring down the portfolio’s standard deviation by a good margin.

How do Fixed Income Bonds Work?

Fixed income bonds involve two parties: the lender, i.e., you, and the organisation, which receives the money. When the organisation, such as the government or a company, needs money, they may offer bonds at a variable or fixed interest rate for a particular duration. The interest rate is called the coupon rate, and the bond’s duration is its term.

When you purchase a bond, you’re effectively lending money to an organisation. Once you’ve invested, you will continue to receive interest payments at regular intervals depending on the loaned amount and the rate of interest on the bond. Bond interest payments are made annually or semi-annually and continue until the bond matures. After maturity, the initial borrowed amount is redeemed to the investor as a balloon payment.

The probability of receiving your principal amount is greater for bonds issued by creditworthy organisations. For instance, the Government of India is far less likely to default on the bond’s interest or principal payments than a small company.

Why are Fixed Income Bonds Perfect for You?

Fixed interest bonds are suitable for every type of investor. Fixed interest securities are less risky, provide guaranteed returns, and help diversify your portfolio. Bonds act as a hedge against market volatility, preventing capital erosion. Thanks to new-age platforms like Invest by Yubi, investing in bonds has also become easy.

You can use Yubi Invest to buy market-linked debentures, covered or perpetual bonds, and commercial papers. The platform has already facilitated transactions worth over ₹4,000 crores, accounting for nearly 50% of covered bonds in India.

Both investors and institutions can use Yubi Invest to achieve their fixed goals. Investors will have access to a large database of information, independent data validation, and a suite of investor-focused features. Institutions, on the other hand, can capitalise on the large pool of investors on Yubi Invest to raise capital quickly.

How can I Invest in Fixed Income?

You can buy fixed-income security or a single bond to invest in fixed-income. However, you need the essential assets to build a diversified portfolio of individual bonds.

The process isn’t as easy as it may sound. You have to overcome obstacles such as high minimum investment requirements, a lack of liquidity in the bond market and high transaction costs.

Investing in fixed income through exchange-traded and mutual funds is still possible. BlackRock, for instance, offers three key pathways of fixed investment:

  • Mutual funds
  • iShares ETFs
  • Models and Separately managed accounts

Here are the steps for investing in bonds:

  • Complete your KYC online,
  • Pick the bond(s) that suit your investment goal
  • Invest your funds.

Who Should Invest in Fixed Income Bonds?

Anyone looking for a safe investing tool can invest in fixed-income bonds. However, you can opt for mutual funds infixed-income securities to eliminate stock market fluctuations.

Fixed-income bonds benefit investors who want to diversify their portfolios and earn secure returns. Fixed-income securities ensure that the investor has a stable flow of dividends. As a result, you can get stable returns despite adverse situations like market downsizing.

Fixed-income securities are also beneficial for senior citizens. They can opt for fixed-income bonds as an alternative source of investment. The fixed-income securities tend to fulfil the criteria of stable returns or low risk for older people.

Remember, no adjustments are made against inflation when you invest in fixed-income securities. It reduces the actual value of the money. Also, it only provides you with a market advantage if the average interest rates of the stock market go up.

Things to know as an Investor

Here’s what to keep in mind while investing in fixed-income bonds.

  1. The capital gains from fixed-income securities depend on taxation according to the Income Tax Act of India, 1963. The short-term capital gains are taxable according to the investor’s income. The long-term gains, on the other hand, go through a 20% deduction.
  2. One needs to manage mutual funds by investing in fixed-income bonds actively. It ensures that the investors have the highest returns along with guaranteed stability.
  3. The investment strategies for these Mutual Funds vary based on their respective maturity period. ETF is suitable for a longer tenure. Debt funds and money market instruments are preferred in short-term investment schemes.
  4. Mutual funds are usually liquid. Hence, it tends to satisfy the financial needs of the investor.


The top fixed-income investment options include:

  • Company Fixed Deposit- This is one of the best investment options. Non-Banking Financial Companies and financial institutions offer FD at a higher interest rate than other fixed-income investment options.
  • Public Provident Fund- PPF is the option you should go for if you are looking for a safe investment option. The Public Provident Fund comes with a government guarantee.
  • Senior Citizen Savings Scheme- This one is the right choice for senior citizens since it provides you with a regular source of income after retirement.
  • Government Bonds- These enable the Government to raise capital for their setups and projects.

The safest investments are the US Treasury bonds since the US Government hasn’t defaulted on its debt. However, other safe investments that promise the highest returns are:

  • Corporate Bonds
  • Money Market Accounts
  • High-yield Savings Accounts
  • Municipal Bonds
  • Treasury Bonds
  • S&P 500 Index Fund/ETF

Stocks promise higher returns but at a higher risk. Bonds, however, guarantee a reliable rate of return and are ideal for risk-averse investors.