scorecardresearchNot interested in debt funds? Investors can opt for these alternatives

Not interested in debt funds? Investors can opt for these alternatives in the fixed income

Updated: 06 Apr 2023, 12:07 PM IST

Investors who want to invest in the fixed term instruments can explore options beyond debt mutual funds. These include National Pension System (NPS), State Development Loans (SDLs) and RBI’s FRBs.

There are options aplenty for investors who intend to invest in debt instruments

There are options aplenty for investors who intend to invest in debt instruments

With indexation benefit phased out for debt mutual funds, some investors may no longer be too keen to invest in them. So, the investors who want to look beyond debt mutual funds can explore a number of options among fixed income instruments that are safe as well as high-yielding. These options range from sovereign bonds and FDs to floating rate bonds.

Here we give you the lowdown on some of the fixed income instruments:

National Pension system (NPS): The pension fund invests across asset classes. These include government bonds and corporate bonds. Investment in government bonds is referred to as ‘G’ and investment in corporate bonds is known as ‘C’.

The investment in government bonds is low risk and low return while corporate bonds fetch medium return for credit risk.

When it comes to government bonds, most pension fund managers (Tier-2) have given return in range of 2.99 percent to 3.9 percent. In the past five years, investment in government bonds has delivered a return of anywhere between 8.1-9.6 percent.

By investing in corporate bonds, investors have earned a return of anywhere between 2.8 percent to 3.24 percent. In the past five years, investors have earned anywhere between 7.6 percent to 8.39 percent by investing in corporate bonds.

Fixed deposits (FDs) with banks, small finance banks, NBFCs: In view of the rising interest cycle, investors can invest in the term deposits of banks, small finance banks or non-banking financial corporation (NBFC).

There are nearly 11 banks that offer more than 8 percent interest on their fixed deposits. These include Bandhan Bank, RBL Bank, Axis Bank, IDFC First Bank, IndusInd Bank, HDFC Bank, PNB and KVB Bank.

Other banks that offer more than 7.35 percent interest on their fixed deposits (FDs) include Axis Bank (8.01 per cent), IDFC First Bank (8 per cent), IndusInd Bank (7.85 per cent), HDFC Bank (7.75 per cent), PNB (7.75 per cent), KVB Bank (7.65 per cent), ICICI Bank (7.60 per cent), Kotak Mahindra Bank (7.6 per cent) and Indian Overseas Bank (7.50 per cent).

State development loans (SDLs): These are bonds issued by state government to fund this fiscal deficit. Generally issued for 10 years, they give interest at half-yearly intervals and repay the principal amount at the time of maturity. They are considered a good-long term investment but not for the short-term.

It is considered safer to invest in SDLs as compared to corporate bonds since they are backed by the sovereign guarantee.

Their issues are monitored by the Reserve Bank of India (RBI) which also monitors its payment of interest and principal.

RBI’s Floating rate bonds (FRBs): RBI’s Floating Rate Savings Bonds, 2020 are also referred to as FRSBs. Their lock-in period is seven years.

They offer an interest of 7.35 percent per annum, 35 basis points higher than that of NSC (National Savings Certificate). The interest rates of FRSBs are linked to the NSCs.

FRSB’s interest income is taxable, and it is also eligible for the tax deducted at source (TDS).

The minimum investment one can make is 1,000, while there is no maximum investment limit. The interest is paid half yearly in January and July.


Government securities are tradable debt instruments that the government offers in the form of bonds, treasury bills, or notes.
First Published: 06 Apr 2023, 09:25 AM IST