Best Investment Avenues For Fixed Income In 2024
Introduction:
Market-linked investment vehicles, such as stocks and equity mutual funds, are suitable for long-term investors seeking inflation-beating returns. However, many investors find it challenging to tolerate the volatility of market-linked investments. They continuously seek investment alternatives that offer both stability and consistent returns while facilitating tax savings. For these risk-averse investors, considering fixed-income investment plans could be beneficial.
Moreover, the recent downturn in the economy has shifted investors’ focus from equity-oriented plans to fixed-income instruments, particularly among those nearing retirement. However, with a plethora of options available, it’s essential to sift through the clutter and identify the most promising avenues for investment.
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In this blog, you will explore the best fixed-income investment instruments in India in 2024. Investing in these instruments can help you generate risk-free returns with minimum hassles.
What are fixed-income investments?
Before you delve into the best fixed-income investments in India, you must know what they are. Fixed-income investments are financial instruments that provide a steady and predictable stream of income. They typically involve lending money to a government or corporate entity in exchange for periodic interest payments. The initial investment is returned at a predetermined maturity date.
Fixed-income investments are considered relatively low-risk compared to equities because they offer a fixed rate of return and are often backed by the issuer’s creditworthiness. Some common fixed-income investments in India are government bonds, corporate bonds, municipal bonds, and fixed deposits (FDs). These investments are favoured by conservative investors seeking stable returns and capital preservation.
Best fixed-income investment instruments in India
Below are the five best investment instruments that can help you generate fixed income in 2024:
1. Fixed Deposits
Fixed deposits (FDs) are one of the most popular and common fixed-income investment instruments in India. They allow you to deposit a fixed sum for a pre-determined tenure and earn interest at a pre-determined rate. The interest and the principal amount are given to you at the maturity date. Some FDs come with an auto-renewal facility, meaning they are renewed automatically upon maturity.
Several banks, non-banking financial institutions, and post offices offer the FD facility in India. It’s crucial to research and invest in an FD that’s offering a competitive rate of interest and investor-friendly features.
2. Government bonds and securities
In a climate of uncertainty, government bonds stand tall as one of the safest fixed-income investment instruments in India. They include avenues such as Sovereign Gold Bonds (SGBs), Municipal Bonds, Treasury Bills, and Government Securities (G-Secs), which offer reliable returns with minimal risk.
The Reserve Bank of India (RBI) continually issues bonds and securities with varying maturities and interest rates, providing investors with flexibility in their investment horizon.
3. Corporate Bonds
In 2024, with economic recovery underway, corporate bonds offer an opportunity to benefit from the growth potential of leading corporations. Similar to government bonds, corporate bonds yield fixed returns on investments and come with pre-determined maturity periods. These bonds are, however, issued by large corporate entities instead of government bodies.
As an investor, you should conduct thorough research on the creditworthiness of the issuing companies before investing in its corporate bond. It helps to mitigate default risks.
4. Public Provident Fund and National Savings Certificate
Public Provident Fund (PPF) and National Savings Certificate (NSC) are long-term government-backed savings schemes. These instruments allow you to make regular savings to fulfil your long-term financial goals such as retirement. Apart from providing guaranteed returns in the form of fixed-income interest, these schemes also provide tax benefits under section 80C of the Income Tax Act of 1961.
However, before investing in the PPF or NSC scheme, you must understand the associated lock-in periods. While a PPF account has a lock-in period of 15 years, NSCs can take 5 to 10 years to mature.
5. Debt mutual funds
Debt mutual funds pool investors’ money to invest in a diversified portfolio of fixed-income securities. In 2024, debt mutual funds offer professional management and the potential for higher returns compared to traditional fixed deposits. You can choose from various categories of debt mutual funds based on your risk appetite and investment horizon.
To conclude
These are the best fixed-income investment instruments in India in 2024, offering a spectrum of options catering to diverse investor preferences and risk appetites. However, it’s imperative to conduct thorough research, assess your financial goals, and consult with financial advisors before making investment decisions.
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