Fixed Income Asset Classes for Indian Investors

July 26, 2023
When it comes to investing, diversification is key. It helps minimize risk and maximize returns over the long term. While equity investments can offer great growth potential, it's important to consider fixed income asset classes as well. These types of investments provide stability and consistent income, which can be especially attractive for risk-averse Indian investors. In this guide, we will explore the various fixed income asset classes available to Indian investors, and how they can be utilized to diversify their investment portfolio. 1. Government Bonds: These are issued by the central and state governments in India. They are considered to be one of the safest investment options as they have low default risk. Government bonds offer regular interest payments and the principal amount is repaid at maturity. They can range from short-term to long-term bonds, offering investors the flexibility to choose based on their investment horizon. 2. Corporate Bonds: These are debt securities issued by corporations to raise capital. Corporate bonds can offer higher yields compared to government bonds, but they also come with higher credit risk. It's important to assess the creditworthiness of the issuing company before investing. Corporate bonds can be categorized into different risk categories, such as AAA, AA, A, BBB, etc., based on the credit rating assigned by rating agencies. 3. Fixed Deposits (FDs): FDs are considered one of the most popular fixed income investments in India. They are offered by banks and non-banking financial companies (NBFCs). FDs offer fixed interest rates and a specified investment period. They are relatively safe, backed by the reserve bank guarantee for up to INR 5 lakhs. FDs can be a good option for conservative investors looking for stable returns. 4. Debentures: Debentures are similar to corporate bonds but are unsecured in nature. They are long-term debt instruments issued by corporations to raise funds. Debentures offer fixed interest rates and have a specified maturity period. Unlike bonds, debentures do not have security backing, so evaluating the creditworthiness of the issuing company is crucial. 5. Public Provident Fund (PPF): PPF is a government-backed savings scheme that offers attractive interest rates and tax benefits to investors. It has a lock-in period of 15 years and provides stable returns over the long term. PPF can be a good option for investors looking for long-term wealth creation with tax benefits. 6. Fixed Maturity Plans (FMPs): FMPs are close-ended debt mutual funds that invest in a portfolio of fixed income instruments with a specific maturity period. These funds offer stable returns and can be tailored to match the investor's investment horizon. FMPs are known for providing tax-efficient returns, especially for investors falling in higher tax brackets. 7. Non-Convertible Debentures (NCDs): NCDs are debt instruments issued by corporations, similar to debentures. However, unlike convertible debentures, NCDs do not offer the option to convert into equity shares of the company. NCDs have redeemable features and offer fixed interest rates. These instruments provide an opportunity to diversify a portfolio by investing in offerings from different issuers. It's important to note that each fixed income asset class comes with its own set of risks and rewards. It's crucial for investors to assess their risk appetite and investment goals before allocating funds. Furthermore, conducting thorough research and seeking advice from financial experts can help investors make informed decisions. In conclusion, diversifying your portfolio with fixed income asset classes can provide stability and regular income to Indian investors. By considering the various options available, investors can tailor their portfolio to meet their financial goals and risk tolerance. With Yield's marketplace of fixed income asset classes, Indian investors have access to a range of products to build a well-diversified fixed income portfolio.