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When the topic of investment arises, equities and mutual funds always take the forefront. For a more risk-averse investor seeking a steady income, investment in fixed income is a recently neglected strategy that serves a purpose equally important.  

The most appealing factor? Fixed income securities are easily available to small-scale investors in India, which goes against the popular belief that you need lakhs to start. 

Now, let me explain how fixed income works, along with its importance in today’s unstable market and how even small contributions every month can help build a diversified portfolio. 

 What Is Fixed Income Investing? 

Fixed income security investments pertain to predicting earning assets that provide consistent periodic interest and a principal amount at the end. Some of the common instruments are:   

•  Government securities (G-Secs)   

•  Treasury Bills (T-Bills)   

•  Corporate Bonds   

•  Non-Convertible Debentures (NCDs)   

•  Fixed Deposits (FDs)   

•  Public Provident Fund (PPF)   

•  Debt mutual funds and ETFs   

•  RBI Floating Rate Savings Bonds   

Unlike equities, fixed income assets are far less volatile. These are used for capital preservation, steady income, and to decrease portfolio risk. 

 Why Fixed Income Matters for Small Investors   

 1. Low Market Correlation   

The greater stability that fixed income investments offer makes them less volatile. They also cushion during downturns in equities. This, especially to small investors, reduces the psychological burden of daily fluctuations in the market.   

 2. Capital Preservation   

With G-Secs and other bank FDs, modest capital can be made while earning modest returns, thereby safeguarding your capital. This is a key element towards developing long-term wealth.   

 3. Predictable Returns   

Fixed-income securities are perfect for retirees or way too conservative savers because most of them pay interest on a set schedule.   

 4. Flexible Entry Points   

The RBI Retail Direct platforms allow investors to enter with as low as 100 Rupees to 1000 Rupees, as well as debt mutual funds, therefore democratizing access to fixed income products.   

 Best Fixed Income Security Investments for Small Budgets   

Here are the various categories that low-budget investors can take advantage of:   

 ✅ Debt Mutual Funds (Liquid, Ultra Short Duration)   

With the opportunity to start from a mere monthly SIP of 500 Rs, these funds are excellent for low-budget investors. They also utilise savings account balances, short-term instruments. This account can also be used to park taxes. 

 ✅ Floating Rate Savings Bonds (Taxable, 7.35%) of RBI   

These bonds are offered by the Government of India with a lock-in period of 7 years and a floating rate which is reset every six months. The minimum investment is ₹1,000. Risk-seeking investors looking for greater returns than Fixed Deposits (FDs) will find them safe.   

 ✅ Public Provident Fund (PPF) 

Though it comes with a 15-year lock-in, the PPF is great for long-term tax-free wealth creation. With an annual investment cap of ₹500, stronger m and interest rates are set to rise, you will still benefit from section 80C while enjoying tax-free interest.   

 ✅ Government Securities via RBI Retail Direct 

This platform permits retail investors to purchase G-Secs and T-Bills directly from RBI. You can purchase Gsecs or T-Bills for as little as 10,000 and earn between 6.8% and 7.5% annual yield.   

 ✅ Fixed Deposits with Small Finance Banks 

Small Finance banks offer ~8.5% on select tenures, outperforming traditional banks, which offer ~6-7%. While striking an agreement, ensure the bank is DICGC insured for deposits worth 5 lakh.   

 How to Build a Fixed Income Ladder with Small Budget 

Laddering is an investment strategy that involves spreading investments across different maturities. This provides liquidity at regular intervals while capturing better returns from longer-term-held instruments. 

For example: 

•  The impact of a time deposit of 1,000 for 1 year.  

•  The impact of a 3-year RBI bond for 1,000. 

•  Making a contribution of 1,000 to a PPF account.  

•  1,000 invested monthly through SIP into a short-term debt mutual fund.  

This method provides better liquidity while also diversifying the associated risks for all investments, ensuring no investment with a low return is locked for prolonged periods.  

 Tax Considerations   

•  The income accrued from FDs and RBI Bonds is subject to taxation based on your income tax bracket.   

•  The new tax regime (effective April 1, 2023) treats debt mutual funds as short-term capital gains and levies tax upon income which is included in total income. 

•  A PPF account is one of the most attractive fixed income products because the interest earned on it is free of tax.   

The proper selection of fixed income security investments greatly enhances the reduced amount of tax payable.   

The lack of tax efficiency has a considerable bearing on the combination of fixed income security investments, particularly for the higher tax brackets. 

 Common Pitfalls   

•  Not checking credit ratings – Always seek AAA or sovereign-rated instruments for safety.   

•  Putting all funds into long lock-in products – Separate some funds to short-term or liquid options.  

•  Not factoring in post-tax returns – Paying 30% tax on a high-yielding product may result in significantly lower returns compared to a product taxed less. 

 Ending Remarks 

An investment in fixed income can be initiated with modest amounts of capital. Where there are digital platforms, diversified choices, and tax benefits, even a few hundred rupees a month can grow with time and lead to meaningful financial stability.  

In the case of Indian investors looking for reliable returns along with protection against currency depreciation, fixed income doesn’t remain a mere defensive posture – it is now also a tactical slice for a well-diversified portfolio.