While compelling gains from the stock market as well as phenomenal last year's gains of 28% from gold and better prospects for the real segment, undoubtedly propel you to add these financial instruments to your overall portfolio, you shall be better off investing in fixed income assets. And here we list some such instruments that offer stability to your portfolio in times of unexpected crisis.
Now before we suggest some good fixed income options:
Here we list out some of the benefits of fixed income avenues:
1. Consistent income flow by way of interest income
2. Helps beat inflation supposing inflation to be at 6 percent as was seen recently the value of Rs. 1 lakh will be hit tremendously.
3. Fixed income instruments also enable diversification of investors' funds.
Now other than the usual and most preferred bank fixed deposits, investors can go for other highly safe avenues that can either offer return as a whole on maturity or may be offering it on a regular basis.
1. Cumulative company deposits:
Both public and private enterprises come out with such deposits and what is here worrisome is that there can be a credit rating change for them over time. Hence they come with some risk element.
|Company fixed deposit||Tenure||Interest Rate|
|Shriram City Union Finance||5 years||8.09% (0.4% extra for senior citizens)|
|PNB Housing Finance||5 years||6.7% (0.25% addition rate to senior citizens|
|Shriram Transport||5 years||8.09% (0.4% extra for seniors)|
|Bajaj Finance||5 years||7% (0.25% extra for seniors)|
2. Zero coupon bonds:
These are offered at a deep discount to the face value and on redemption or at maturity, face value is given to the investors. Hence such fixed income options are also referred as deep discount bonds.
Here importantly investors do not get any interest pay out. And the difference between the buying price and the face value is the gains for the investor.
These investments are an easy option as they don't need much of monitoring and investors using such an investment can target funds at a given time say at a futuristic period at the time of child's education or marriage.
3. Tax-free bonds:
Another safe investment option, tax free bonds offer interest income which is tax free. Companies like Rural Electrification, HUDCO and some other PSU majors float their issues and offer an interest of 8% or so on an annual basis.
But in case of tax free bonds, if they are redeemed in the secondary market and investor makes any capital gains then the same qualify for short or long term capital gains tax which is depending on the holding period. If the holding period is less than one year then tax at the rate of individual's slab rate applies. And if the holding period is of over a year then LTCG tax @ 10% without indexation becomes applicable.
In tax free bonds, there is offered less liquidity and they come with a lock-in.
Tax free bonds that provide tax-free interest are suitable for conservative retiree or senior citizens looking for regular income investor class who falls in the highest tax slab of 30%. Other investor categories who can consider investment in tax free bonds include HUFs, HNIs, qualified institutional investors and cooperative banks.
Tax free bonds come with a better return rate and investors can invest up to Rs. 5 lakh in tax free bonds. Also, as these are primarily issued by government backed entities, these are highly safe and carry low default risk.