Various Debt Instruments for Investment in India

 

Debt instruments are financial assets that represent a contractual obligation by one party, the borrower, to repay the principal amount borrowed plus interest to another party, the lender. In other words, debt instruments are loans or borrowings that are issued by governments, corporations, and other entities to raise capital.

Debt instruments include a wide range of financial products such as bonds, debentures, notes, bills, and certificates of deposit. These instruments have different characteristics such as interest rates, maturities, credit ratings, and risk profiles.

Debt instruments are an important source of financing for businesses and governments because they provide a way to raise funds without giving up ownership of the company or government entity. Investors who buy debt instruments receive regular interest payments and the principal amount at maturity.

The value of debt instruments is affected by changes in interest rates and creditworthiness of the issuer. When interest rates rise, the value of existing debt instruments decreases because the fixed interest payments become less attractive. Similarly, if the creditworthiness of the issuer declines, the value of the debt instrument may decrease because the risk of default increases.

 

There are following types of Debt instruments in India where we people can invest and get maximum benefit out of it:-

 

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1.       Government bonds: These are issued by the Government of India and are considered to be one of the safest investment options. They are also known as G-Secs and are available in various tenures ranging from 1 year to 40 years.

2.       Corporate bonds: These are debt securities issued by companies to raise capital. Corporate bonds carry a higher risk than government bonds but offer a higher rate of return. They are available in various tenures and credit ratings.

3.       Public Provident Fund (PPF): PPF is a government-backed savings scheme that offers guaranteed returns and tax benefits. It has a lock-in period of 15 years and can be extended for an additional 5 years.

4.       National Pension System (NPS): NPS is a retirement savings scheme that offers tax benefits and flexible investment options. It is managed by the Pension Fund Regulatory and Development Authority (PFRDA).

5.       Fixed deposits (FDs): FDs are a popular investment option in India, offered by banks and other financial institutions. They offer a fixed rate of return and are available in various tenures ranging from 7 days to 10 years.

6.       Debentures: Debentures are debt instruments issued by companies to raise capital. They are similar to corporate bonds but are unsecured in nature and carry a higher risk.

7.       Non-convertible debentures (NCDs): NCDs are a type of debenture that cannot be converted into equity shares of the issuing company. They are available in various tenures and credit ratings.

8.       Tax-free bonds: Tax-free bonds are issued by government-owned entities such as NHAI, NTPC, and HUDCO. They offer a fixed rate of return and are exempt from income tax.

9.       Sukanya Samriddhi Yojana (SSY): SSY is a government-backed savings scheme that aims to promote the welfare of the girl child. It offers tax benefits and a higher rate of return than other savings schemes.

10.   Post Office National Savings Certificates: This is a fixed income investment scheme that offers a fixed rate of interest for a fixed period. The interest rate is currently 6.8% per annum.

11.   Post Office Kisan Vikas Patra: This is a savings scheme that doubles the money invested in a period of 124 months. The interest rate is currently 6.9% per annum.

 

 

These are some of the popular debt instruments available for investment in India. It is important to research and understand the risks associated with each instrument before investing.