Skip to main content

Fixed Income Investments

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Buy Gold Mutual Funds

As equity investors' fear level increases, so does the general interest level in fixed income investments. "Now that equity markets have tanked, should I move my money to fixed income investments?" is a common question that investors ask nowadays. The logic seems so simple. Stocks bad, so FDs good. Except that it doesn't really work out that way.

 

There are many good reasons for investing in fixed income. However, the equity markets being down is certainly not one of them. When you do that, then you are essentially saying that the equity markets are going to go lower so your money will be safer in fixed income investments. Essentially, such questions are about predicting the timing of which way the equity markets will move. Timing, for whatever reason, is a bad idea. The likeliest outcome is generally either losses or missed opportunities.

That doesn't mean that fixed income doesn't play a role in your portfolio. It does, but for an entirely different set of reasons. There are three possible reasons for investing in fixed income instruments. The biggest is that you are not looking for capital gains. You actually need a stable predictable monthly income from your investments. Generally, this is the kind of need that a retired person has.

 

The second major reason which calls for fixed income is that you have a defined expense on the short-term or medium-term horizon and you need to make sure that the money budgeted for it stays safe. Perhaps you know you need a couple of lakhs for a child's education three years from now. Keeping it in a savings account seems pointless since the returns are so low. However, putting the money in equity is way too risky since the actual expenditure can't be postponed and has the highest priority.

 

The third set of reason to invest in fixed income is a little more complex, which is asset rebalancing. Asset rebalancing means that instead of seeing the equity-vs-fixed question as a black-vs-white binary choice, you should be seeing it as a shade of grey. Based on the time horizon of your financial needs and your risk tolerance, you could decide to some percentage of your financial investments in equity and some in fixed income. Once every year or so, you could 'rebalance' your portfolio. What this means that if the actual balance has veered away from your desired one, you should shift money from one to the other in order to attain that percentage again.

 

As far as the actual instruments go, the regular income need is probably best met by the post office monthly income plan. These deposits are guaranteed by the government and pay an annual return of 8.5 per cent. You can just calculate the size of the deposit required for the income you need and that's that. For capital gains, the first choice could be the Senior Citizens Deposit Scheme if the depositor is more than 60 years old. These are also guaranteed by the government and offer a nine per cent rate of return. Nine per cent used to be a real premium rate when this scheme was launched some years back but the scheme is a little less attractive now. I guess if the budget comes before the elections we could finally see a higher interest rate in this scheme.

 

Of course, there are always bank fixed deposits. These offer interest rates that have generally been quicker in tracking market conditions. As interest rates have risen, most banks are offering close to ten per cent for deposits of over a year. Finally, there are the fixed income mutual funds. These are a complex product and more difficult to choose than the others and are somewhat riskier. On the plus side, one can pull out one's money at short notice. However, choosing a good income fund is a separate story and we'll come to that another time.

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...
Read more

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...
Read more

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...
Read more

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...
Read more

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now