Fixed income refers to any type of investment under which the borrower or issuer is obligated to make payments of a fixed amount on a fixed schedule. This includes income from fixed-income investments such as bonds, preferred stocks, or pensions that guarantee a fixed income. Fixed income can also refer to a person’s income that does not vary materially over time.

Corporate Fixed Deposits (FDs): Corporate Fixed Deposits are fixed deposits offered by corporate companies, functioning similarly to regular bank FDs but offering a higher rate of interest. These higher returns come with higher risks. The tenure for a corporate fixed deposit ranges from 1 to 10 years.

Company Fixed Deposit: A Company Fixed Deposit is the amount deposited by investors for a fixed period with a company, which offers a fixed rate of return. These deposits are accepted by manufacturing companies, financial institutions, and non-banking finance companies and are governed by the Companies Act 58A.

• Benefits of Company Fixed Deposits:
• Higher interest rate: Typically 2-4% higher than bank FD rates.
• Regular income: Investors can choose to receive interest at monthly, quarterly, half-yearly, or yearly intervals.
• Lock-in period: Most schemes have a minimum lock-in period of six months, after which investors can withdraw their money.
• TDS: Not applicable if the interest earned is equal to or less than ₹5,000 per year from a single company.
• Important Considerations:
• Read the application form carefully.
• Check the company’s rating before investing.
• Conduct a background check of the company.
• Companies may change interest rates on fixed deposit schemes without prior notice.

Non-Convertible Debentures (NCDs) / Bonds:  When a company needs to raise money from the public, it issues a debt paper for a specified tenure, paying fixed interest on the investment. This paper is known as a debenture. Non-Convertible Debentures (NCDs) do not offer the option of conversion into shares, and on maturity, the principal amount along with accumulated interest is paid to the holder.

A bond is a fixed-income investment where an investor loans money to an entity (corporate or government) for a defined period at a variable or fixed interest rate. Bonds are used by companies, municipalities, states, and sovereign governments to raise money. Bondholders are debt holders or creditors.

• Advantages of NCDs:
• Tax Benefits: Listed NCDs held for over a year are considered long-term capital assets, taxed at 10.30%, unlike debt mutual funds which require a three-year holding period for similar treatment.
• Higher Returns: NCDs often offer higher returns compared to debt mutual funds and bank fixed deposits, especially for investors in the highest tax bracket (30%).

RBI Tax-Free Bonds:

RBI - 8% Savings (Taxable) Bonds, 2018:

• Eligibility for Investment:
• Individuals (excluding NRIs):
• In their individual capacity.
• Jointly or on a survivor basis.
• On behalf of a minor as a guardian.
• Hindu Undivided Families (HUFs).
• Investment Limit: No maximum limit for investment in the bonds.
• Tax Treatment:
• Interest on the bonds is taxable under the Income Tax Act, 1961.
• Bonds are exempt from wealth tax under the Wealth Tax Act, 1957.
• Transferability: Bonds held to the credit of Bonds Ledger Account are non-transferable.
• Interest: 
• Bonds can be issued in cumulative or non-cumulative forms at the option of the investor.
• Non-cumulative bonds pay interest half-yearly, while cumulative bonds compound interest semi-annually, payable on maturity.
• Tax Deduction at Source (TDS): TDS applies to interest payments unless the investor provides a tax exemption certificate.
• Repayment: Bonds are repayable after 7 years from the date of issue.Premature encashment is allowed for investors aged 60 and above, subject to specific lock-in periods:
• Lock-in period for investors aged 60-70 years is 6 years.
• Lock-in period for investors aged 70-80 years is 5 years.
• Lock-in period for investors aged 80 years and above is 4 years.

Tax-Free Bonds

• What are Tax-Fr​​ee Bonds?

Securities issued by companies, financial institutions, or the government, offering regular or fixed interest payments over a specified period.

Interest earned from these bonds is exempt from income tax under the Income Tax Act, 1961.

• Who Issues Tax-Free Bonds?

Government-backed entities and public undertakings such as IRFC, PFC, NHAI, HUDCO, REC, NTPC, NHPC, and IREDA.

• Features:

• Tenure: Investment periods of up to 10, 15, or 20 years.
• Liquidity: Bonds can be sold before maturity in the secondary market.
• Safety: Government backing ensures regular interest payments.
• Tax Benefits: Interest income is tax-exempt.
• Holding: Bonds can be held in physical form or a Demat account.

• Eligibility for Investment:

• Retail Individual Investors (RIIs), including members of HUFs and NRIs.
• High Net-worth Individuals (HNIs) with low-risk appetite.
• Qualified Institutional Buyers (QIBs).
• Corporates, trusts, co-operative banks, and regional rural banks.

• Investment Process:

• Available in both physical and Demat forms.
• Can be purchased during public issues or through the secondary market using a trading account.

• Why Invest in Tax-Free Bonds?

• Tax-free income.
• Low-risk investment.
• Easy liquidity.
• Optional Demat holding.
• Rated by various agencies for investor confidence.

Note: Currently, no tax-free bond issues are available in the primary market. Interested investors can invest through the secondary market.