Fixed Income Securities: Meaning, Types & Tax Treatment

Introduction

Income-focused investing plays a critical role in financial planning for retirees, conservative investors, and those seeking predictable cash flows. This is where fixed income securities become relevant.

This article explains the fixed income meaning, outlines the types of fixed income securities, provides practical fixed income examples, and clarifies how these instruments are taxed in India—purely from an educational perspective.

Fixed Income Meaning: What Are Fixed Income Securities?

Fixed income securities are financial instruments that provide investors with regular income in the form of interest or coupons, along with the return of principal at maturity (subject to issuer terms).

In simple terms, the fixed income meaning refers to investments where:

• income payments are defined upfront

• payouts follow a known schedule

• returns are not linked directly to company profits

These instruments are widely used for income stability rather than capital growth.

Key Features of Fixed Income Securities

Common characteristics include:

• Predictable cash flows: interest payments at fixed intervals

• Defined maturity: principal repayment date is known

• Issuer obligation: issuer commits to interest and principal payments

• Lower volatility: compared to equity-based instruments

However, predictability does not imply absence of risk.

Types of Fixed Income Securities

The types of fixed income securities can be broadly classified as:

Government-Issued Securities

• government bonds

• treasury instruments

• savings bonds

Corporate Fixed Income Instruments

• corporate bonds

• debentures

• bank-issued debt instruments

Other Fixed Income Instruments

• fixed deposits

• money market instruments

• structured debt products

Each type differs in risk, return, and liquidity characteristics.

Fixed Income Examples in the Indian Context

Some common fixed income examples include:

• government securities with periodic coupons

• PSU and corporate bonds paying interest

• bank fixed deposits with periodic payouts

• post office savings schemes

These examples illustrate how fixed income securities function across issuers and structures.

How Fixed Income Securities Generate Returns

Returns from fixed income securities typically come from:

• interest or coupon payments during the tenure

• repayment of principal at maturity

Returns may be:

• fixed throughout the tenure, or

• linked to reference rates, depending on the instrument

Market prices of fixed income securities may fluctuate, but income payments are usually predefined.

Tax Treatment of Fixed Income Securities in India

Taxation depends on the nature of the instrument:

• Interest income: generally taxable as per income tax slab

• Capital gains: may arise if securities are sold before maturity

• Tax exemptions: apply only if specifically notified

There is no universal tax exemption for all fixed income securities, making post-tax returns an important consideration.

Risks Associated With Fixed Income Securities

Despite predictable payouts, risks include:

• Interest rate risk: rising rates can reduce market value

• Credit risk: issuer may fail to meet obligations

• Inflation risk: real returns may decline over time

• Liquidity risk: difficulty exiting before maturity

Understanding these risks is essential for realistic expectations.

Common Misconceptions

Misconception 1: Fixed income means guaranteed returns

Guarantees depend on issuer and instrument type.

Misconception 2: Fixed income securities are risk-free

All investments carry some level of risk.

Misconception 3: Fixed income is only for retirees

Fixed income plays a role in diversified portfolios across age groups.

Conclusion

Fixed income securities form a foundational component of income-oriented investing. Understanding the fixed income meaning, different types of fixed income securities, real-world fixed income examples, and their tax treatment helps investors evaluate these instruments more objectively.

They are best viewed as tools for stability and income rather than aggressive growth.

Disclaimer

This blog is intended solely for educational and informational purposes. The bonds and securities mentioned herein are illustrative examples and should not be construed as investment advice or personal recommendations. BondScanner, as a SEBI-registered Online Bond Platform Provider (OBPP), does not provide personalized investment advice through this content.

Readers are advised to independently evaluate investment options and seek professional guidance before making financial decisions. Investments in bonds and other securities are subject to market risks, including the possible loss of principal. Please read all offer documents and risk disclosures carefully before investing.