What Is a Debt Instrument?

A debt instrument is an asset that an entity, such as an individual, business, or the government, uses to raise capital or to generate investment income. Investors provide fixed-income asset issuers with a lump-sum in exchange for interest payments at regular intervals. Fixed-income issuers repay the full principal balance of a bond or debenture at the maturity date. Credit facilities such as mortgages, loans, lines of credit, and credit cards are also considered debt facilities .Types of debt instruments available are- Fixed Deposit, Public Provident Fund and Employees’ Provident Fund. Let’s first understand about FIXED DEPOSIT. A fixed deposit is a type of deposit in which a sum of money is locked for a fixed period of time. However, the tenure for the fixed deposit is decided by the person who invests his funds. This tenure could be anywhere from a few days to several years. In return for locking in these funds, fixed deposits pay the depositor a fixed rate of interest. All banks offer fixed deposits at different rates. Opening a fixed deposit is extremely simple and can be done both online and offline. On the other hand, Public Provident Fund (PPF) scheme is a long term investment option that offers an attractive rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under Income Tax. One has to open a PPF account under this scheme and the amount deposited during a year will be claimed under section 80C deductions. Now, let’s understand about EMPLOYEE PROVIDENT FUND. An Employee Provident is a retirement benefits scheme, and any salaried employee can join an EPF. The scheme creates a common provident fund where the employer and the employee each will have to contribute 12% of the basic salary.The deposits are made every month. In this way, employees are stashing away a part of their salary each month, ensuring that they have enough savings after retirement. EPF is eligible for tax benefits under Section 80C. Both the interest gained and the returns are made tax free.

So here to conclude we can say that, both the EPF and PPF are government-backed savings instruments. The EPF is managed by a statutory body called the EPFO while the PPF is managed directly by the government. FD is also a safe option to invest in.