Investment School: Why should one invest in fixed income?

Why should one invest in fixed income?

In the period of falling markets, many are now concerned about capital protection and not about sky rocketing returns which was the story an year back.

Fixed income investment instruments provide capital safety and also assurance in returns unlike stock markets.

Scenarios when fixed income investment is needed

1. Need for constant monthly income which is the case for most senior citizens. This can be achieved by post office senior citizen deposit scheme.

2. To meet short to medium term goals(3-5 years). In order to meet a financial commitment 3 years down the line,you need the capital to be safe and also have an assured return over time.In this world of volatile markets, equity investments should be chosen only for periods greater than 5 years.

3.To Rebalance your portfolio. Based on financial needs and risk tolerance, a good balance between equity and debt needs to be maintained.

Thumb Rule : Debt %( One's age) : Equity % (100 - one's age)
Eg : for 25 years old , debt:equity ratio is 25:75

The portfolio rebalancing should be done in a regular basis to meet your risk tolerance.

Fixed Income Instruments

1. Bank Fixed Deposits.
2. Post Office Deposits.
3. FMP mutual funds.

So start reviewing the fixed income component in your portfolio.

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