There are various Fixed Interest bearing instruments available in the market. Below are some of the options for investors who are looking for safe investments with fixed returns:

• Corporate Fixed Deposits
• NCDs
• Taxfree Bonds
• Capital Gain Bonds
• Secondary market Debt Instruments

CORPORATE FIXED DEPOSITS:

Corporate Fixed Deposits are one of the many money raising tools for Companies. Through these, Companies raise money from the public and offer a fixed rate of interest for different tenures. The amount of money which can be raised is decided by the Approving authorities. As a part of your portfolio, Corporate Fixed Deposits provide much needed stability in returns and also reduce volatility. They best suit investors who prefer fixed returns on their investments. Charu Wealth offers top rated FDs with varied duration and interest rate. Other General Features:

• These have periodic interest payment option (Monthly, Quarterly, Semi Annually, Annually) and Cumulative option (Compounded and paid at maturity) specific to the deposit.
• They offer higher rates of interest than regular bank deposits.
• Issue is rated by Independent Rating agencies like CARE, CRISIL, ICRA etc.
• Some Fixed Deposits can be bought online
• No TDS if interest is up to Rs. 5000 in a single financial year.

Here is a list of top company fixed deposits based on interest rates, credit ratings, etc.

• HDFC Limited
• Bajaj Finance Limited
• Mahindra Finance
• PNB Housing Finance
• LIC Housing Finance

NCDs

Non convertible debentures are issued by the company so as to raise money from public. It is for a specific tenure where the company pays a fixed interest on the investment. NCDs cannot be converted into shares. On maturity, principal amount along with interest will be paid. Agencies such as CRISIL, ICRA, CARE and Fitch Ratings give ratings to the company that raise money through NCD. Charu Wealth offers top rated NCDs with varied duration and interest rate.

High interest rates

The rate of return on NCDs is around 11-12%. This is high compared to most investment options. For example, fixed deposits (FDs) are another popular avenue where people put their money for regular returns. However, the returns are much lower. There are various interest payout options including monthly, quarterly, semi-annually and annual payments. The maturity period for an NCD can be anywhere between 90 days to 20 years. This gives you the flexibility to choose between short and long tenures based on your investment goals.

Liquidity

Since they are listed on the stock exchanges, NCDs are easy to withdraw. Redeeming your NCD investment may be a little tougher than selling regular stocks, but they are more liquid than bank fixed deposits.


Important terms you should know:

Secured and unsecured NCDs

An NCD can either be secured or unsecured. A secured NCD is backed by the issuing company’s assets. This means that the company has to fulfil its debt obligation whatsoever. However, that’s not the case for unsecured NCDs. This makes secured NCDs safer since they have a lower default risk.

Ratings

If you seek to buy NCDs, it is very important to know the rating of the debenture before you buy it. Every company that seeks to raise money through an NCD is rated by agencies such as Fitch Ratings, CRISIL, ICRA and CARE. These rating agencies rate the company based on its ability to service its debt on time. So, a lower rating means a higher credit risk.

Tenor

A non convertible debenture is simply a debt instrument used by a company when it wishes to raise money from the public. The company issues a debt paper for a specific tenor. During this period, it pays a fixed rate of interest to the buyer. This could be on a monthly, quarterly or annual basis. At the end of the tenor, the money that is invested is returned back to the buyer.

Yield

Yield is a financial jargon used to describe the income return earned on a security over a specific period of time. In case of NCDs, the yield on redemption has been quite attractive for buyers. This is because they generally offer higher yields when compared to even corporate FDs.

Things to consider before investing in NCDs

• Check company’s background

Make sure you research the company’s history before you invest. Check if the company has raised money in the past and has successfully repaid its debts. It is a good sign if the company has met its obligations. Else, you may want to avoid investing in the company.

• Check company’s credit rating

The biggest draw for NCDs is the interest rate offered. However, that should not be the sole reason to invest. It is important that the high interest rate offered by the company is backed by good credit ratings. Study the credit ratings given to the company by different rating agencies such as CRISIL before you make your decision. A higher rating will suggest the company has the ability to repay its loans.

To sum up When compared to other fixed income instruments, NCDs offer higher returns to the investor. In addition, NCDs can be a good way to diversify your portfolio.

TAX FREE BONDS

The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961. These bonds are generally issued by Government Backed entities and thus have very low default risk. Other General Features are:

• These bonds can be applied in Physical or Dematerialized mode
• These bonds generally come with long tenures of 10, 15 and/or 20 years, however, these bonds can be traded on the listed exchange if applied in demat mode
• There is no Cap on investment made in these bonds
• Retail Individual Investors get higher interest rates, so for an Individual, HUF to be eligible for higher rates the maximum investment amount is Rs.10 Lakhs
• The interest offered is benchmarked to the Government security of similar maturity, subject to conditions laid down by CBDT.
• These bonds however, do not provide any additional tax benefits

CAPITAL GAIN BONDS (54EC Bonds):

According to section 54EC, any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of long term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less. Interest rate offered on these bonds is 6% per annum. The exemption is subject to:

• The investment is made within a period of 6 months from the date of transfer of the asset
• Lock-in-period of 3 years
• Bonds sold, transferred or converted into money or any loan or advance taken on security of such bond within a period of 3 years from the date of acquisition, the capital gains earlier exempt are taxable in the year of sale or transfer of the bonds
• Maximum investment limit of up to Rs. 50 Lakhs in a Financial Year per individual.
• If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.