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Fixed-incomey

When investing, there are usually two very important things to keep in mind: risk and return. A higher-risk investment could potentially give you higher returns, but it also comes with the risk of losing money.

A lower risk investment has a lower chance of loss, but the returns can also be significantly lower in comparison. Fixed income instruments or securities are of the latter kind.

They are a lower risk investment compared to stocks and have several benefits of their own.

What Are Fixed Income Instruments?

Fixed income instruments (aka fixed income securities) are a kind of debt instrument that provide a regular interest-based income on the invested principal amount until the date of maturity. The principal amount is repaid at the time of maturity.

Fixed income investments act as liabilities for the issuing organization, which are usually financial companies or the government. They issue these debt securities to raise money for funding various operations and projects.

Returns are based on the creditworthiness of the issuing organization, which often makes these a much safer choice of investment. They are different from variable income instruments and other securities because the income rate is usually fixed at the start.

Why Invest In Fixed Income Instruments?

Regular Passive Income

Because of the regular returns, fixed income securities serve as a passive income until the time of maturity. This is one of the major reasons why someone chooses to invest in fixed income securities.

Stable and Safe

Another reason why fixed income instruments are popular with investors is that the rate of interest is fixed at the start. This means that, despite fluctuations, the income is stable. Because of the way the issuing organization uses the invested money, it is also not as susceptible to market fluctuations, and hence are low-risk, safe investment options. The creditworthiness and credibility of the organization also plays a role in the risk, so choose a reputable company for your investment.

Types Of Fixed Income Instruments In India

In India, fixed income investments come in many different forms. With more and more people wanting to invest their money and save for the future, it is important to understand the basics before you choose to invest. Here are some of the popular fixed income instruments that are available in India:

Fixed deposits

Probably one of the most common forms of fixed income instruments, fixed deposits (FDs) are offered by banks and other financial institutions and are commonly known as company fixed deposits. Fixed deposits often work similarly to savings accounts but with a higher interest rate, although there are penalties if you withdraw your money before the maturity date. In an FD, the rate of interest is fixed at the start, and the investment period can be anywhere from 7 days (for certain banks) to 10 years.

National Savings Certificate (NSC)

National Savings Certificates (NSCs) are offered by the government of India and are a post office investment scheme introduced to encourage low- to mid-income investors to save money. Hence, these have a low minimum principal of investment of ₹ 100, but also have no upper limit on investment. NSCs have a minimum lock-in period of 5 years and can qualify for tax deductions as well.

Public Provident Fund (PPF)

Public provident funds (PPFs) are another fixed income instrument offered by the government of India. They serve as both an investment and a tax-saving option for many, thereby making them a popular investment choice for some people, although the long lock-in period of 15 years is often a deal-breaker for some. Because it is a government backed scheme, returns are almost guaranteed, and the interest is paid annually. Additionally, only one PPF account is allowed per citizen.

Government Bonds

Bonds are a debt instrument that is issued by a body, and then used for various day-to-day projects and financial needs. The most common type of bonds are government bonds, which are issued by a state or central government. In India, the Reserve Bank of India issues government bonds to the public. Government bonds are also limited to residing citizens and have a minimum term of 5 years, although the maximum can be as long as 40 years. The bonds offered by the RBI also have a minimum principal amount of ₹ 1000. Government bonds also come in various different types and have a guaranteed return, which makes them a very safe investment choice.

Senior Citizens Savings Scheme (SCSS)

Another post office savings scheme offered by the government of India is the Senior Citizens Savings Scheme (SCSS). This scheme is aimed at those over 60 who wish to have a stable income at low risk and save on taxes. SCSS can be obtained from any authorized bank, and its income is eligible for tax deductions.

Concluding Thoughts

With many forms of fixed income investments available in India, they are becoming a very popular choice among investors for generating a stable passive income due to their low risk and predictable returns. Many government-issued fixed income options also help save on taxes, which is another reason to invest in them. 

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1) Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020. 2) Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge. 3) Pay 20% upfront margin of the transaction value to trade in cash market segment.  4)Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 dated August 31, 2020 and other guidelines issued from time to time in this regard.5) Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month. 6) For Stock Broking transaction : Prevent unauthorised transactions in your account 7) KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (Broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary  8) Update/ confirm your mobile number/email ID with us OR If you wish to change/ modify the current Mobile No. & E-mail ID, you are requested to provide MODIFICATION FORM duly filled in and signed OR If you do not want to provide Mobile No. & E-mail ID, you are requested to send DECLARATION FORM duly filled and signed.  9) Receive information of your transactions directly from exchange on your mobile/email at the end of the day...Issued in the interest of Investors 10) No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remain in investor's account. 11)As per SEBI Circular MIRSD/ SE /Cir-19/2009 dated December 3, 2009 Client transaction account shall be required to do the actual settlement of funds and securities at least once in a Quarter or month.