Investment Tips: Diversified investment in Fixed Income products for better profits, know what is your policy

Whenever we talk about diversification, most of the times we think of investing in the stock market. Much of the conversation about this fundamental of investing is about equities. At the same time, there is no special conversation about fixed income. At the same time, investment products with guaranteed returns, like the stock market, require diversification for balance and stability.

Diversification needed in products with guaranteed returns

Before understanding about the method of diversification into guaranteed income or fixed income products, let us know why it is necessary to do so? This is because no two products are the same even in fixed income products. They are different and serve different purposes.

For example, tax-saving fixed deposits (FDs) reduce your tax liability. On the other hand, Public Provident Fund (PPF) helps you meet financial goals like children’s education, marriage and retirement. Hence, you should invest in different products with guaranteed returns to achieve different goals and for diversification.

How can you diversify?

Emergency does not come by telling the time and if you are not prepared, you can get into trouble. For such situations, you must have an emergency fund. Pandemic like Kovid-19 has increased the need for this fund manifold. For any difficult situation, you can create an emergency fund by investing in FD. FD rates have come down in the recent past. In such a situation, while creating an emergency fund, you should think about returns last.

FDs fit well in terms of safety, liquidity and return (SLR) principles. You can withdraw your funds even before maturity by paying a nominal penalty. To start an FD, you can go to the bank and give it by filling the FD form. Not only this, you can also do FD through internet banking.

Invest in Provident Fund for your children’s higher education/marriage and your retirement

You can bet on Public Provident Fund (PPF) for your children’s higher education, their marriage and your retirement. It is a sovereign scheme, which has EEE (Exam, Exam, Exam) status. The amount invested, the interest received and the amount received at the time of maturity are completely tax free.

The government decides the interest rate of PPF before every quarter. The rate of interest on PPF for the quarter ending June 2022 stands at 7.1 per cent. PPF has a lock-in period of 15 years. A longer lock-in period gives your money more time to grow and this is where the role of compounding becomes important. You can make partial withdrawals subject to compliance with certain conditions.

Tax-saving fixed deposits to reduce tax liability

Investment in tax-saving FDs gives you tax exemption under section 80C as per Income Tax 1961. Under 80C, tax exemption is available on investments up to Rs 1.5 lakh in a financial year. Tax-saving FDs have a lock-in period of five years and unlike regular FDs, you cannot break it before maturity.

The rate of interest is fixed throughout the tenure of the FD. You can invest as little as Rs 1,000. The maturity amount (principal + interest) gets credited to your account on completion of the deposit period.

Sovereign gold bond helps to overcome inflation

Gold has always been an effective instrument to beat inflation. However, there are several disadvantages to keeping them in physical form. There is tension to keep it in a safe way, on the other hand, there is also a kind of fear about purity. However, sovereign gold bonds (SGBs) do away with such concerns.

You also get an interest of 2.5% per annum on SGB. In this, the investors get interest on half yearly basis. The maturity period in this is eight years but you can exit after five years. Overall, buying it is cheaper than physical gold.


Diversification into fixed income products as per your financial goals helps you to take full advantage of the asset class. With this, most of your goals are easily achieved. Best wishes for your investment. President & Head, Personal Wealth, Edelweiss Wealth Management