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6 Fixed Income Investments For Young Investors To Build a Strong Financial Foundation

6 Fixed Income Investments For Young Investors To Build a Strong Financial Foundation

Imagine a building constructed with no foundation. It will come crashing down, isn’t it?

The same goes for fixed-income investments in your portfolio. They provide your portfolio with a solid foundation in the form of stability, liquidity, and downside protection. This is why they deserve equal importance in your portfolio as high return options like equity.

The number of fixed income investment options available today may make it difficult for young investors to choose the right one for their financial needs. In this article, we explain the main features of some popular options. This hopefully will help you zero in on the right option for your needs.

1. Debt Mutual Funds:

Given the financial industry’s innovation over the years, debt mutual funds have emerged as a perfect fixed-income investment option for young investors. They are low cost, transparent, and easy to invest. They invest in fixed-income securities like treasury bills, corporate bonds, etc. Investing in debt funds come with the following benefits:

  1. Unlike investments like corporate FDs, in debt funds, your money is diversified across multiple papers and bonds – this reduces the credit risk in a big way.

  2. You get the option to choose a fund whose duration aligns with the maturity date of your financial goal.

  3. Unlike age-old investments like post office schemes, here you get super-flexible options to invest like SIP, STP and SWP. Also, you can invest utterly online from the comfort of your home, which saves time and effort.

  4. Debt funds allow you to do some intelligent planning and reduce your tax impact. This is because debt funds get taxed as capital gains. The liability to pay tax arises only at the time of selling the investment.

2. Fixed Deposits:

Fixed deposits are one of the most popular fixed investment options. You can open a fixed deposit in any bank of choice. Prefer scheduled banks to ensure the safety of your investment. Corporate fixed deposits are also available. They offer a slightly better return than bank fixed deposits but also comes with credit risk. If you’re looking for a tax benefit, you can invest in 5-year tax-saving bank fixed deposits. Do note that the interest is taxable. Your investment is protected up to INR 5 lacs by the Government. Interest on fixed deposits is taxable every year as per your tax slab.

3. Public Provident Fund:

PPF is the most popular investment option for long term savings, especially for retirement. The best thing about PPF is that it is a risk-free investment and carries a sovereign guarantee from the Government. The duration of investment is 15 years. You can invest a maximum of INR 1.5 lacs in a single year. The return varies as per government directives; presently, it is 7.1%. Your investment qualifies for a tax deduction under Section 80C of the Income Tax Act. You also have the flexibility to make a partial withdrawal after 5 years of opening the account.

4. Employee Provident Fund:

If you are an employee, you need to invest 12% of your salary in an EPF with a matching contribution by the employer. Your investment qualifies for a tax deduction under Section 80C. Interest that you earn is exempt from tax. Any withdrawal made after 5 years of continuous service is also tax-exempt. You can withdraw for reasons like marriage, medical emergency etc. The interest rate is decided annually by the EPFO trust – presently, it is 8.5%.

5. Sukanya Samriddhi Yojana:

SSY is an excellent scheme to consider for your girl child’s education goal. You can open the account till your daughter turns 10. You can make deposits up to 15 years from the date of opening of the account. You can withdraw funds after the gird child attains 18 years of age. You can close the account after your daughter reaches 21 years. The maximum investment can be up to INR 1.5 lacs per year, and it qualifies for a deduction under Section 80C. The interest rate varies every year (the present rate is 6.8%), and interest is taxable every year. The excellent point is that the interest and maturity amount is tax-free.

6. Post Office Schemes:

There are also many Post Office saving schemes that you can choose from. Features of some notable schemes are as follows:

  1. National Savings Certificates (NSC): You can invest in it without a limit. Investment up to INR 1.5 lacs carry a tax deduction under Section 80C. The interest rate varies every year (the present rate is 6.8%), and interest is taxable every year.

  2. Post Office Monthly Income Scheme (MIS): You can invest up to INR 4.5 lacs in a single name and INR 9 lacs in a joint name. The interest rate varies every year (the present rate is 6.6%) earned is taxable. Unlike NSC, you don’t get a tax deduction for your investment.

Some Points to keep in mind while making fixed-income investments

  1. Investment in fixed income avenues doesn’t protect you from inflation. Don’t invest all your money in these avenues. Decide on an asset allocation and invest in a balanced mix of low and high-risk investments.

  2. Align the maturity date of investment with the financial goal. Check the lock-in period and pre-mature withdrawal penalties before investing.

  3. Take care to manage the credit risk and duration risk in debt funds. You can minimise duration risk by choosing liquid and short-term funds. Choosing funds having a highly rated and diversified portfolio helps manage credit risk.


Fixed income investments act as a foundation to hold your financial structure. You need to carefully evaluate various options on various parameters like alignment to your financial goal, liquidity, safety, tax benefits, lock-in, and ease of investment. This due diligence will help you reap maximum benefits from your investments and increase the chances of achieving your financial goal.


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