Fixed-Income securities are debt instruments that pay a fixed amount of interest to investors . It may be monthly, quarterly, half yearly, annually or cumulative. The principal amount is refunded upon maturity. Companies raise capital by issuing these fixed-income products for the purpose of repaying their old debts or for expansion.

The most common investors in this category are Mutual funds, Banks, Insurance companies, Institutions, High Net worth individuals and small retail participants.

Some of debt instruments are

Corporate Fixed Deposits 

Corporate fixed deposits or company fixed deposits are term deposits wherein you put your money for a fixed tenure at a fixed rate of interest. They are offered by non-banking financial companies (NBFCs) and other financial institutions. Compared to a regular bank fixed deposit, they fetch a higher rate of interest. The investors can choose the frequency of interest payment as per their convenience that may vary from   Monthly, Quarterly, Half- yearly, yearly or cumulative. The maturities of these deposits can vary from a few months to a few years.

High Yield NCDs

In corporate finance, a debenture is a medium- to long-term debt instrument used by large corporates or companies to raise money, at a fixed rate of interest that is slightly higher than interest offered by nationalised banks on fixed deposits. The NCDs are issued by corporates either for expansion or to repay their higher interest loans. They can be Secured or Unsecured in nature. Secured NCDs fetch lesser interest as compared to Unsecured NCDs. Further there are two types of debentures, convertible and non-convertible. Convertible debentures are converted into Shares upon maturity, whereas non-convertible debentures offer varying interest payment options till maturity along with return of principal amount at maturity.

Capital Gain Bonds (54 EC Bonds)

Under Section 54 EC of Income Tax, 1961 an investor is not required to pay tax on any long-term capital gains arising on sale of any asset, if the amounts of capital gains are invested in certain specified bonds i.e. 54 EC Bonds.

The Key features of Capital Gains Bonds are listed below:

Issue Details On-going
Tenure 5 years
Rate of Interest 5.00% p.a. payable annually
Taxation Interest is taxable although no TDS is deducted
Redemption Automatic Redemption after 5 Years
Rating AAA rated
Mode of Holding Physical or Demat
Min Investment 1 Bonds (Rs. 10,000)
Max Investment 500 Bonds (Rs. 50,00,000 Lacs)

Perpetual Bonds

Perpetual Bonds are also known as Additional Tier 1 Bonds. AT1 bonds are issued by Banks & NBFCs that do not have any specified maturity date. Banks issue AT1 bonds to meet their capital adequacy requirement in case of financial crisis. They can be redeemed by issuers, usually after five years or ten years by exercising the call option. The issuer may call or redeem the bonds if they can refinance the issue at a cheaper rate, especially when interest rates are declining. They also have the option to keep paying you interest or skip and extend the tenure of bond.

issuers can skip paying interest or principal if the capital adequacy ratio falls below a certain threshold to protect themselves from any systemic risk. Issuers try to keep their capital adequacy ratio above this regulatory limit. Some of the major issuers in India are State Bank of India, Bank of Baroda, Punjab National Bank, HDFC Bank, HDFC Limited.