Different Fixed Income Products

Fixed Income Schemes accommodate a return on a fixed schedule while the payments can vary. Conservative investors often look forward to a safer form of investment instruments that carry minimum investment risk. While bank deposits have always been the first choice of such conservative investors, people keep looking for better avenues for investment. For such investors, fixed income schemes are appropriate options.

This is unlike a variable income security where the payments change on the basis of short term interests. Mentioned below are the few fixed income products for better understanding:

• DSP BlackRock Ultra Short Term Fund

The main objective of this scheme is to generate returns that involve some risk. The portfolio constitutes of money market securities or debt securities. The asset size is about Rs. 287.07 Crores.

• Public Provident Fund (PPF)

This fixed income schemes was introduced by the National Savings Organisation in the year 1968 in order to mobilize small savings. Individuals can open this account on their names as well as on the behalf of a minor. The investment limits are about a minimum of Rs 500 and the maximum you can invest/deposit is Rs. 1.50 Lakh per annum. The duration of the scheme is for about 15 years which can be extended for about 1 or more blocks of 5 years.

• DSP BlackRock Bond Fund

This is an open-ended scheme which seeks to generate returns along with considerably lesser risk. The portfolio constitutes of debt securities and the scheme seeks capital appreciation. This is a long-term investment that invests the money market and has an asset size of Rs. 315.77 Crore.

• GOI Bonds

This bond is issued by the Reserve Bank of India whose rate of interest is about 8 percent per annum. The interest is taxable by the investor and is extremely safe since the bonds are issued by the government. There is a lock-in period of about six years and the minimum amount for issuing a bond is Rs. 1000.

Three Reasons to Invest in Fixed Income Schemes

What are Fixed Income Schemes?

Fixed Income Schemes invest in securities such as bonds, debentures, government securities, money market instruments and other similar instruments. The main purpose of such schemes is to invest is to generate a steady income against a balanced investment risk.

Fixed Income securities carry minimum investment risk as the main motive is to offer the promised returns to the investors. On the other hand equity securities have no such obligation to pay back the investors. Though the promised return is comparatively higher, equity funds have high risk of investment loss. So, conservative investors prefer going with fixed income schemes.

Following are a few schemes that offer investment benefits to investors:

More tax efficient

Fixed Income Schemes are more tax efficient than several other investment instruments. After a year, the invested income is always treated as a long term capital and is taxed at 10% or 20%. If you hold the debt fund for a longer duration or period, then the indexation benefit is higher. For instance, DSPBR Banking & PSU Debt Fund offers extensive tax benefits to investors by heavily investing in debt and money market instruments, which have special tax exemption.

Better returns

The longer the period of investment, higher are the returns. Funds that invest in long term bonds are not applicable to changes in rate which occur in short-term debt funds’ investments. For instance, DSPBR Government Securities Fund has a longer lock-in period and directly invests in GOI bonds. As lock-in period is longer, it offers better returns as compared to other short term funds.

More flexible

Fixed Income Schemes are more flexible than others and a person can invest small amounts in them every month. Certain schemes primarily invest in money market instruments that offer combined benefit of liquidity and growth. For instance, DSPBR Money Manager Fund has a portfolio of money market instruments that offer better gains than regular debt instruments.