Fixed Investments - Bonds

Bonds are another alternative to Fixed Deposits which is secured where preservation of capital and income are maintained for short, medium to long term. It typically includes investments in government securities and with very minimum exposure to Equity

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Bonds

Bond refers to a security issued by a company, financial institution or government which offers regular or fixed payment of interest in return on the amount borrowed money for a certain period of time.

Government Bonds

These are the kind of fixed income instruments issued by the Government through Reserve Bank of India (RBI), central or state government owned corporates and/or local authority directly to the public for investments. These bonds are generally for long term tenure with lock in period or with call and put options.   

7.15% p.a RBI Floating Rate Savings Bond, July 2020

Government of India has announced to launch Floating Rate Savings Bonds, 2020 (Taxable) scheme commencing from July 01, 2020 to enable Resident Indians/HUF to invest in a taxable bond, without any monetary ceiling. Interest on bonds is taxable and it has a lock in of 7 (seven) years. Since bonds are issued on behalf of Government of India, it is the safest investment any investor can look for.

The interest rate will not be fixed; it will be floating. As and when interest rates rise, these bonds will give a higher interest rate to bond holders. The interest payable on January 1 and July 1 will be linked to the then prevailing rate of interest on National Saving Certificate (NSC). FRS will pay 35 basis points more than the rate offered on NSC.

 

Advantages: Safety, Guaranteed return.

Disadvantage: Interest is taxable.

 

 

 

NCDs

Debentures are long-term financial instruments which acknowledge a debt obligation towards the issuer. … The debentures which can’t be converted into shares or equities are called non-convertible debentures (or NCDs).

An NCD is a type of loan that is issued by a company, which cannot be converted to equity. They are higher risk in nature when compared to a bank fixed deposits, since they run the risk of the issuer defaulting on repayments. Secured NCDs are safer than unsecured ones, but offer higher returns as well.

NCDs are taxed at your slab rate, which means if you are in the highest tax bracket, the interest you earn will be taxed at 30%. Hence, your post-tax returns will be much lower. NCDs can work for those in the lower tax category or those with no taxable income