Investing in 2026: What should be your fixed income allocation strategy? Explained

We have already stepped into 2026, and discussions with financial planners on 2026 asset allocation strategies are in full swing. Since every asset plays a distinct role in an investor’s portfolio, it is imperative to get the right mix based on your goals and investment appetite.

Equity is for growth, but it can be highly volatile in the short term, as was visible in 2025. Similarly, gold is a hedge against inflation and a safe haven against uncertainty. In 2025, we did see gold playing that role very well. Now that inflation is lower in 2026, it remains to be seen whether gold can continue to outshine.

Fixed income is for stability. In 2025, interest rates on fixed deposits fell, while yields on government bonds increased. The interest rates on corporate bonds saw some moderation but held steady.

In 2026, what should be your fixed income allocation strategy? Should you increase it?

Before we discuss the fixed income strategy for 2026, let's briefly review 2025 to see how various asset classes performed.

Performance of asset classes in 2025

In 2025, we saw divergent trends in the performance of various asset classes. The precious metals gold and silver had a phenomenal run. Gold glittered with a whopping 70%+ return, and silver with an eye-popping 150%+ return.

In comparison, the Nifty 50 delivered a decent 10% return; however, it was largely overshadowed by the outperformance of gold and silver. The equity markets experienced a fair share of volatility due to geopolitical uncertainty, regional conflicts, trade wars, and tariffs, among other factors. These very reasons helped gold outperform, but kept equities in check.

In the fixed income segment, the interest rates on fixed deposits and the yields on government bonds moved in opposite directions. In 2025, most banks reduced the interest rates on their fixed deposits by 100 to 150 basis points. Even the interest rates on savings accounts were not spared, with most banks also reducing them.

While bank deposit rates fell, the yields on Government Securities moved up.

As seen in the chart above, the yields on the 10-year G-Secs declined in the first couple of months, from a high of around 6.80% to a low of around 6.20%. However, from there, they have risen steadily to levels of around 6.65%. So, while the current RBI Repo Rate stands at 5.35%, the 10-year G-Sec yield is hovering around 6.65%.

Fixed income allocation in 2026

In the fixed income category, some of the investment options include the following.

1. Bank fixed deposits

As discussed earlier, in 2025, the interest rates on bank fixed deposits decreased by 100 to 150 basis points. Currently, most public and private sector banks offer interest rates ranging from 6.00% to 6.75% per annum on 1–3-year fixed deposits. Some small finance banks (SFBs) offer an interest rate of up to 7.50% p.a. on fixed deposits of similar tenures. Senior citizens earn a higher interest rate of up to 0.50% p.a.

Last year, before the RBI began cutting interest rates, the interest rates on fixed deposits reached their peak in the current cycle. Investors who locked in the high interest rates by investing in bank fixed deposits at that time are reaping the benefits of it now. In 2026, the interest rates on fixed deposits are less appealing than they were in 2025.

2. Government Securities

Over the past few months, the yields on 10-year Government Securities (G-Secs) have climbed steadily. At the start of February, the Government will present the Union Budget. The announcements regarding the fiscal deficit target, the amount the Central Government will borrow, and other key details will be important things to watch out for.

Apart from that, factors such as FPI flows into G-Secs, the inclusion of India's G-Secs in global bond indices, an increase in the weightage of Indian G-Secs in existing global bond indices, the RBI's liquidity management, INR stability, among others, will influence the yields on G-Secs.

If the investment horizon is for the short term, an investor may consider low-duration or short-duration debt funds. These funds are less sensitive to interest rate movements. They benefit from interest accrual.

If the investment horizon is long-term, an investor may look at long-duration debt funds. If the bond yields soften, they will make capital gains. However, if bond yields continue to rise, the returns will be adversely impacted.

3. Small Savings Schemes

The Small Savings Schemes include Post Office Fixed Deposits, Senior Citizens Savings Scheme (SCSS), National Savings Certificate (NSC), and Public Provident Fund (PPF), among others. The interest rates on these products have remained unchanged in the last couple of years. The current interest rates are as follows.

The above table shows, the interest rate on SCSS (8.2%), Sukanya Samriddhi Account (8.2%), NSC (7.7%), 5-year FD (7.5%), PPF (7.1%), etc., is decent. If an investor has been contributing regularly, every year, to schemes like the SSA, PPF, etc., they can continue with it.

4. Corporate bonds

In 2025, as the RBI reduced the Repo Rate, interest rates on corporate bonds also went down, along with bank fixed deposits. However, most corporate bonds still pay higher interest rates than bank fixed deposits. Compared to the interest rates of 6.00% to 6.75% p.a. on 1 – 3-year bank fixed deposits, the interest rates usually range between 7.00 to 12% p.a. on most corporate bonds of the same tenure.

The interest rate offered on a corporate bond depends on the issuer’s financial position, credit rating, bond tenure, market interest rates, and other factors. The types of bonds available can be categorised based on issuer, tenure, credit rating, interest payment frequency, security offered, and other factors.

Depending on their risk profile, an individual can choose the type of bond to invest in and the amount to invest. An investor should consult a qualified and experienced financial advisor who will do the risk profiling and recommend bonds accordingly for investment.

How much should one allocate to fixed income?

Fixed-income products provide the much-needed stability to an investor’s portfolio. When stock markets become volatile, the fixed-income portion cushions the overall portfolio of an investor. The amount an investor should allocate to fixed income will depend on various factors, including the investor’s age, risk profile, return expectation, investment time horizon, market interest rates, overall market conditions, and other factors.

A good financial advisor can consider all these factors and accordingly recommend how much one should allocate to fixed income and how to invest it across different fixed income products. Investing in fixed income is not a one-time activity. The investor should meet with their financial advisor at least once every six months to a year to review the portfolio performance and make changes as needed.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decision.