How choosing the right fixed income investment avenue can protect your savings from inflation and taxes

Fixed-income investments have long been considered safe, offering capital preservation and steady income. However, in an inflationary and tax-impacted environment, if you simply seek safety in nominal returns, you can severely undermine your purchasing power. The key to truly effective safe investing is to focus on tax- and inflation-adjusted returns that reflect the real growth of wealth.

Saurabh Jain, Co-founder and CEO, Stable Money, said, “Small Finance Bank deposits have emerged as a compelling alternative, offering interest rates typically 1–2% higher than traditional banks while still being protected under the ₹5 lakh DICGC insurance limit. Many fixed deposits today earn above 8% interest, helping investors make informed choices to protect and grow their savings.”

“At the same time, retail participation in bonds is rising steadily as investors recognise their role in enhancing portfolio stability and post-tax efficiency. High-quality corporate and government-backed bonds are now enabling individuals to earn higher, fixed, and predictable returns with greater liquidity and transparency,” added Jain.

However, Atul Shinghal, Founder and CEO of Scripbox, said,  “A bond yielding 7% annually may shrink to nearly zero real return after considering a 30% tax rate and 5% inflation. This risk highlights the importance of rethinking fixed income through a smarter lens, one that accounts for real purchasing power over time. The easiest — and possibly the most dangerous — path to enhance returns on fixed-income investments is to invest in issuers with low or no credit ratings. In the past case of defaults, the investors have lost almost their entire capital.”

According to experts, one of the best ways to inflation-proof wealth is to opt for an asset allocation approach that combines fixed income, equity, gold, and other asset classes. Asset allocation can help balance risk and return. “A well-designed allocation manages reinvestment risks, captures inflation cycles, and provides diversification benefits that single asset classes cannot,” said Shinghal.

Investors looking to safeguard and grow purchasing power should :

> Focus on tax-efficient fixed-income options, such as tax-free bonds. According to experts, one can invest in Arbitrage funds with a 3-12 month view. Income plus Arbitrage fund of funds with a 2-year lus view. The newly launched SIF category might be worth exploring with a 3-year-plus view.

> Employ dynamic asset allocation, leveraging multi-asset funds with a long-term view (5-year plus) for a single product with dynamic Asset allocation, diversification and inflation resilience.

> Regularly review and rebalance portfolios rather than relying on static asset classes.

Inflation-proofing wealth means managing hidden risks. Like taxes and inflation, intelligently. Applying a smarter lens to fixed income and embracing asset allocation can transform “safe” investments into effective tools for sustainable real wealth creation.

“The broader trend is clear — fixed income is no longer seen as passive parking for surplus funds, but as an active, yield-optimising pillar of long-term wealth creation. This marks a more mature and strategic approach to inflation-proofing one’s portfolio,” said Jain.