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Fixed income investments are the ones that offers the investor a steady stream of fixed returns on a specified schedule. The returns/payouts may vary depending upon the investments. One of the most popular fixed-income investments is your individual bond. Fixed income investments include bond funds, Post Office Saving Schemes, and Corporate deposits (Company deposits).Certificate of Deposit, Exchange-traded Funds (ETF) and money market funds.

Fixed Income Investments offer fixed returns at a pre-determined rate with interest -acquired overtime over a specified period. These instruments are less risky than the derivative and equities and hence can be used to diversify the portfolio. These are well suited for diversification as the returns on fixed income securities are reliable. They are particularly popular amongst retired investors.

What encompasses Fixed Income Investments?

Fixed income securities are defined by the investment style they carry and the expected returns  that they generate:

1) Exchange Traded Funds:

These funds are listed and traded on stock exchange. Nifty, BSE SENSEX and S&P are some of the associated indexes. These funds can be traded in the cash market on a day-to-day basis (Positions). Gold ETF is one of the most popular choices of investment in ETF. You can buy as many units as you want without any restrictions, similar to shares in a stock market on a day-to-day basis. The only difference between ETFs and any other type of index funds is, ETFs do not try to outperform their corresponding index. There are three major benefits to it.

  • They offer a diversified investment portfolio.
  • The stocks are selected carefully by the index providers and are rebalanced periodically.
  • They have liquidity anytime through the exchanges.

2) Debt Funds:

Debt funds majorly invest in safer instruments such as government and corporate bonds. They have a low risk and thus a lower return. They are stable investment platform as they avoid volatile stock markets. They do not prefer investing in volatile stocks and thus have more predictable returns. There are four most common types of debt funds.

A. General Debt Funds: A general debt fund invests in different types of debt instruments, both government and private, for a specific period of time. These instruments are usually Bonds, Certificates of Deposits (CDs) and debentures.

B. Monthly Income Plans: These are called MIPs; the Monthly Income Plan funds give regular payouts. These payouts can be given monthly, quarterly, semi-annually or annually.  A significant part of the capital is invested in the debt instruments and the remaining in Equity. These Funds are different from the post office monthly scheme as the payout for MIP might not be there if the fund is not performing well enough

C. Gilt Funds: This fund is government securities specific only, investing in securities like government bonds. The rate of return doesn’t stay constant for an average gilt fund. It could be 2.5% in half a year, 15% in a year and maybe 10% in 5 years. Since the returns vary a lot, they are not the first choice amongst investors.

D. Liquid Funds: These funds invest in short-term debt instruments for periods varying between 3 months to 6 months. The instruments covered in this fun are certificates of deposit, treasury bills, term deposits etc

4) Money Market Funds:

These funds only invest in money market instruments such as commercial papers, commercial bills, treasury bills, Certificates of Deposit etc. These funds have a lock-in period of minimum 25 days. Earlier, RBI used to regulate these funds, but now they come under the purview of SEBI. These funds provide investors with a viable low-risk return option to invest easily with accessible cash and their equivalent assets.

Characteristics of Fixed Income Instruments

  • Focus of fixed income investments is not primarily on capital appreciation but on generating a steady income stream for the investor.
  • Debt funds offer better returns than money market funds in the long run, but ETFs accumulate more profits due to their Equity like functioning.
  • These Fixed investment funds are actively managed by Fund managers, who proactively adjust the portfolio to keep the portfolio in line with maco economic changes like changes in interest rates and other economic conditions.
  • One can easily take advantage of indexation and tax reductions on the returns.


Fixed income Investments have been all-time favourite of Investors seeking a more stable and constant stream of returns or for the ones who can not involve themselves in markets that actively. Having said that, it is imperative to understand these assets help more in building a long-term capital structure rather than a quick capital appreciation.

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