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What are Fixed Income Instruments?

Fixed income instruments or fixed income securities are debt instruments that provide returns in the form of regular or fixed interest payments. Also, there is repayment of the principal amount on the maturity date. Therefore, investors will know the corpus value they will receive post maturity at the time of investment. 

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Fixed income instruments act as a liability for the issuer in the market. Also, the interest payments of a fixed income instrument depend on the creditworthiness of the issuer. Hence, this type of security is popular among investors who do not want to expose themselves to risks. Also, such investors wish to earn steady returns on their investments. 

The most common instruments in the category are fixed deposits, government bonds, and fixed maturity plans. National Savings Certificate, Public Provident Fund, and Senior Citizen Savings Scheme are also fixed income instruments in India.

Types of Fixed Income Instruments

Fixed Deposits

Fixed deposits are one of the most popular investment options in India. Banks and other financial institutions offer this instrument. A fixed deposit offers a fixed interest rate on the principal investment for a predetermined period. Generally, the tenure of an FD ranges from 7 days to 10 years. Also, the interest rate is fixed at the time of deposit and does not change during the tenure of the deposit. However, the interest rate can vary depending on the bank or NBFC. It also depends on the deposit amount and the tenure of the deposit. Moreover, a fixed deposit offers a higher interest rate than a regular savings account. A 5-year tax saving FD qualifies for tax deduction up to INR 1.5 lakhs under Section 80C

Fixed Maturity Plans

Fixed Maturity Plans (FMPs) are close-ended debt funds that come with a lock-in period ranging from 30 days to 5 years. FMPs primarily invest their assets in fixed income instruments such as certificates of deposits, commercial papers, treasury bills, etc. Therefore, the objective of the scheme is to eliminate interest rate fluctuation in the debt market. Also, it aims to provide steady returns to the investors over a fixed tenure. Investors can invest in FMPs only during the New Fund Offer (NFO) period and redeem their investment only on maturity. 

National Saving Certificate

National Savings Certificate (NSC) is a post office savings scheme by the government of India. The objective of this scheme is to encourage small and mid-income investors to save. Also, the NSC certificate earns a fixed interest rate during the tenure. The minimum amount to invest in this scheme is INR 100 and has no upper limit. Furthermore, the scheme has a lock-in period of 5 years which is not extendable. Moreover, investment in NSC qualifies for tax deduction up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961. Only individuals who are residents of India can invest in NSC. Non-Resident Indians (NRIs) cannot open a new NSC.


The Public Provident Fund (PPF) is an investment cum tax saving instrument in India. The Government of India backs this scheme. Hence, the returns are guaranteed. Also, some nationalised and private banks are authorised to accept PPF investments. The government fixes the rate of interest on a PPF account. And the interest on PPF is payable on 31st March every year. A PPF account has a lock-in of 15 years and can be extended for a block of 5 years. You can open only one PPF account, and multiple accounts are not allowed. Furthermore, investment in PPF account for up to Rs. 1.5 lakh qualifies for tax deduction under Section 80C of the Income Tax Act,1961. 


Senior Citizens Savings Scheme (SCSS) is a post office savings scheme by the Government of India. Since the Ministry of Finance, the Government of India backs SCSS. This scheme falls under low-risk investments. The GOI reviews the interest rate regularly. Also, this scheme has a lock-in period of 5 years, and you can extend the tenure for another 3 years. Hence, this scheme is suitable for senior citizens (age 60 years & above) who wish to earn a regular income at low risk and save on tax. An investment in the scheme is eligible for a tax deduction under Section 80C of the Income Tax Act, 1961. However, the interest income is taxable under the head ‘Income From Other Sources’ at the tax slab applicable to the investor. Moreover, you can easily open an SCSS with any authorised private or public sector bank. 


Pradhan Mantri Vaya Vandana Yojana (PMVVY) subsidised scheme provided by the Government of India for senior citizens. This scheme offers regular and fixed income with the flexibility to choose the payout frequency as monthly, quarterly, half-yearly, or yearly. Also, it provides a fixed rate of return which GOI reviews at the beginning of every year. The tenure of this scheme is 10 years. However, it gives an option to exit from the scheme anytime, providing high liquidity to its subscribers. Therefore, this yojana is best suitable for senior citizens who wish to earn an assured return on a regular basis along with insurance benefits. 

Note: The last date to invest in PMVVY is 31st March 2023. From April 1st 2023, the PM Vaya Vandana Yojana is set to close.


National Pension Scheme (NPS) is a long-term investment plan. It was started by the Central Government under the purview of the Pension Fund Regulatory and Development Authority (PFRDA). It is open to employees from public, private and unorganised sectors. As a part of the scheme, it requires investors to invest in a pension account during the course of their employment. Post-retirement, the employees can take a certain portion of the corpus. And the remaining amount will be provided to the employee as a monthly pension. Moreover, investment in NPS provides tax benefits up to Rs 1.5 lakh under section 80C and up to Rs 50,000 under section 80CCD.

Government Bonds

Government bonds are debt instruments that the Central and State government in India issue to finance their needs and regulate the money supply. The RBI issues bonds on behalf of the government, where it sells bonds to the public by inviting investments. The government will repay the principal and interest on the specified maturity date. Also, the interest rate that it offers can be fixed or floating rate. The duration of these bonds ranges from 5 years to 40 years. Furthermore, the government issues different variants of bonds that investors can choose based on their needs. Therefore, government bonds are suitable for investors with low-risk tolerance levels as they prefer security from their investment. 

Features of Fixed Income Instruments

The following are the key features of fixed income instruments – 

  • Fixed income instruments generate regular or fixed returns through interest payments.
  • These instruments involve lower risk. Hence they are ideal for investors with a low-risk tolerance level. 
  • The predictability of returns makes fixed income instruments safer than equity because of the rate of interest and payment structure, which the investors know in advance. 
  • They offer higher rates of interest in comparison to saving accounts.
  • Instruments such as PPF, 5-year Fixed Deposits, and Post Office Deposits are exempt from tax under Section 80C of the Income Tax Act,1961.
  • The taxation of fixed income instruments is similar to debt funds. The short term capital gains are taxable as per your income tax rate. The long term capital gains are taxable at 20% with indexation benefit.