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Fixed Deposit
Bonds

What is a Bank Fixed Deposit?

A fixed deposit or term deposits is an saving option offered by banks wherein a depositor can invest their money for a fixed tenure & rate. The rate of interests depends on the duration of the deposits & the banks.

Features

Depositor can earn interest on surplus funds available in the account
Encourages saving habit
Only one fixed deposit account can be opened at a time. The depositor can open multiple accounts for other such deposits
The deposit can be renewed or withdrawn up on maturity
As per traditional scheme, the interest earned on FDs gets credited to the depositor’s account either on monthly or quarterly basis, as opted by the account holder
Premature withdrawals are not permitted but in case of emergency, banks allow closure of FD accounts. The deduction charges will be levied (percentage of charges may vary from bank to bank)

Non-convertible debentures

Non-convertible debentures

Non-Convertible Debentures or NCD cannot be converted into equity shares & hence offer investors higher interest rates. NCDS can further be classified as Secured & Un-Secured.

Secured NCDs are backed by the organization or the issuer company’s assets to fulfill debt obligation. Moreover, NCDs may also feature Put Or Call Options. In simple terms, if the NCDs are issued under “Call Options” (Callable Bonds) then they can be redeemed by the issuer before the maturity. The issuer can can call back bonds if they are issued in a high rate environment & the rates fall subsequently. Whereas in a bond issued under “Put Option” , the investor can sell the bond to the issuer at a specified price before its maturity, if the interest rates go up after the issuance of the bonds.

Features

NCDs offer high returns & low risk options. The interest rate & rate of return are subject to market conditions
As per section 193 of Income Tax Act, there will be no tax levied on securities issued by companies if they are in a demat form & listed on a stock exchange. However, they are taxable if held in physical form
NCDs are rated by agencies like FITCH, CRISIL & ICRA
They are offered in four options: monthly, quarterly, annual & cumulative interest

Bonds

Bonds are basically a way for companies & governments for issuing capital for expansion, infrastructural projects, etc. By issuing bonds to the public, the organizations & Government can raise money for their projects. In simple terms bonds are like a loan for which you are the lender. The organization who sells the bonds is known as issuer & the holder is called as an investor. The bonds usually have a defined term or maturity, upon which the bonds can be redeemed.

Features

Diversification:

Investment in fixed income securities counterbalances high-risk investments in a portfolio and serves to even out returns in times of volatility.

Fixed returns:
They offer a potentially attractive and regular income avenue as the rate of interest is fixed (in most cases but not all) till maturity.

YTM (Yield to Maturity):
By investing in bonds and holding them till redemption, you can earn maximum returns in the form of regular interest plus the face value amount on maturity.

Protect from volatility:
While fixed income securities generally do not offer the high returns potential of other investments, you are spared from the volatility common in other markets as its price fluctuation is relatively lesser than equity stocks.

Liquidity:
Fixed income securities provide the flexibility and liquidity required to construct a portfolio customized to your specific investment objective. If required, low-risk fixed income instruments like government bonds can be sold at short notice.

Lower Risk:
Fixed income securities represent a loan from investors. As these investors are creditors to the company, in the eventuality of the company being winded down, they have priority over shareholders.

Here is a list of top tax free government and private bonds running in the market. Each of them gives information about coupon rate, last traded price, etc.

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 5 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.

Government Bonds:

These bonds are offered by the Government of India at a fixed rate. As these are issued & backed by the Government, they are very safe. Interest is taxable in the hands of the investor & it has a lock in period of 6 years.

Features:

There isn't any ceiling on these bonds & are open for investments by individuals, charitable investments & universities
These bonds come with a lock in period of 6 years & carry an 8% interest per annum
The interest on cumulative bonds are paid off at maturity, compounded with the half yearly rates
The interest on non-cumulative are paid at half yearly intervals

Corporate Bonds:

These bonds are issued by organizations in private or public sector. These are issued with the objective of borrowing funds from the market to finance their operations/growth. Generally issued for period ranging from 1 year to 20 years, these type of bonds offer income in form of regular interest.

Features:

The principal amount invested is safe & regular income in form of interest
High rate of interest offered
Through issue of such bonds, long term capital needs of the corporate sector can be met
If the bonds are listed, then liquidity along with capital appreciation is on the offer

Zero Coupon Bonds :

These types of bonds are sold at the fraction of their Face Value & offers no monthly or periodic interest payments to the investor/holder. These bonds are offered at a discount on the Face Value & on maturity, the investors get the Face Value back. Thus, the difference between the two is the profit earned.

Features:

They are offered at a fixed interest rate
These bonds appreciate gradually & the earnings accumulate until maturity

Junk Bonds :

Also, known as high-yield bond, they are issued by organizations that are not financially stable & are considered below investment grade. Being a risky trade for the investor, the issuer offers high rate of returns upon maturity to compensate the additional risk.

Features:

High rate of returns but suitable for investors with appetite for high risk
Can boost overall returns in your portfolio while avoiding higher volatility of stocks

Sovereign Gold Bond (SGB)

Sovereign Gold Bond Scheme was launched by Govt in November 2015, under Gold Monetisation Scheme. Under the scheme, the issues are made open for subscription in tranches by RBI in consultation with GOI. RBI Notifies the terms and conditions for the scheme from time to time. The subscription for SGB will be open as per following calendar. The rate of SGB will be declare by RBI before every new tranche by issuing a Press Release.

As per RBI instructions “Every application must be accompanied by the ‘PAN Number’ issued by the Income Tax Department to the investor(s)’’ as the PAN number of the first/ sole applicant is mandatory.

Features

To be issued by Reserve Bank India on behalf of the Government of India.
The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
The tenor of the Bond will be for a period of 8 years with exit option in 5th, 6th and 7th year, to be exercised on the interest payment dates.
Minimum permissible investment will be 1 gram of gold.
The maximum limit of subscribed shall be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to time. A self-declaration to this effect will be obtained. The annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchase from the Secondary Market.
In case of joint holding, the investment limit of 4 KG will be applied to the first applicant only.
RBI will issue Press Release stating issue price of the Bond before new Issue. Price of Bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited (IBJA) for the last 3 business days of the week preceding the subscription period.
Payment for the Bonds will be through cash payment (up to a maximum of Rs. 20,000/-) or demand draft or cheque or electronic banking.
The Gold Bonds will be issued as Government of India Stocks under Government Security Act, 2006. The investors will be issued a Holding Certificate for the same. The Bonds are eligible for conversion into Demat form.
The redemption price will be in Indian Rupees based on simple average of closing price of gold of 999 purity of previous 3 working days published by IBJA.
All the branches of the State Bank of India are authorised to accept the subscription
The investors will be compensated at a fixed rate of 2.50 per cent per annum payable semi-annually on the nominal value.
Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time. The lien on the bond shall be marked in the depository by the authorised banks.

Note : The loan against SGBs would be subject to decision of the bank/financing agency and cannot be inferred as a matter of right.

Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.

Eligibility

The Bonds will be restricted for sale to resident Indian entities including individuals (in his capacity as individual, or on behalf of minor child, or jointly with any other individual), HUFs, Trusts, Universities and Charitable Institutions.

KYC

Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long term capital gains arising to any person on transfer of bond.

Sovereign Gold Bond Scheme (SGB): Forthcoming Tranches during 2021-22

Sl. No.	Tranche	Date of Subscription	Date of Issuance of Bonds
1.	2021-22 Series VII	October 25–29, 2021	November 02, 2021
2.	2021-22 Series VIIl	November 29 –December 03, 2021	December 07, 2021
3.	2021-22 Series IX	January 10-14 , 2022	January 18, 2022
4.	2021-22 Series X	February 28 - March 04, 2022	March 08, 2022

Tax Free Bonds:

Capital Gain Bonds (54EC Bonds):

Government Bonds:

Corporate Bonds:

Zero Coupon Bonds :

Junk Bonds :

Sovereign Gold Bond (SGB)

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