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ABC of Fixed Income Investing June 23, 2011
Fundsupermart.com has always tried to draw notice to this asset class through various research and personal finance articles on the website. Taking this initiative further, we bring to you this series explaining basics of fixed income investments!
Author : Niketa Agarwal and Dhanashri Rane


ABC of Fixed Income Investing

Retail investors in India can be said to be reasonably well informed when it comes to investments in equities, real estate or even assets like gold or silver. The Fixed Income asset class, however, is not so well known. As a tool for diversification, and as a safe avenue for volatile times, understanding this class is important. Even experts agree that greater retail participation in the fixed income market in India will make it more robust.

Fundsupermart.com has always tried to draw notice to this asset class through various research and personal finance articles on the website. Taking this initiative further, we bring to you this series explaining basics of fixed income investments!

Download Your Free copy Now>>

Introduction

Fixed Income, as the name suggests, is an investment avenue wherein the investor gets predictable returns at set intervals of time. This investment class is relatively safe with low volatility and forms an ideal investment option for people looking at fixed returns with low default risk, e.g., retired individuals.

Introduction To Fixed Income>>

Introduction To Debt Mutual Funds>>

Securities That Debt Fund Managers Invest In>>

 

IT'S All ABOUT The Yield

With fixed income securities, your total return on investment is denoted by its “yield” which depends on:

  1. Face Value (how much you paid for it initially)
  2. Coupon Value  (rate of interest you receive periodically)
  3. Duration (when will the security be redeemed if you wish to hold it to maturity)
  4. Market Price (how much will you receive for the security if you were to sell it)

While the face value, coupon rate and duration of a security cannot change once issued, its market price fluctuates with changes in market interest rates, which in turn affects the yield. The following sections explain how:

Understanding Yield>>

4 Important Things YTM Tells You>>

How to Invest in Fixed Income Funds?

When the factors are favourable, the performance of the debt funds improves.

Factors That Make Fixed Income Funds Attractive>>

Things to look in a factsheet>>

Types of Risks>>

Alternate to Savings Account

Most of us leave a good amount of our income in the savings account. According to a RBI report, the savings deposits comprise almost 20-25% of total deposits in scheduled commercial banks. Clearly, the savings account works well as a vehicle for personal fiscal management especially, as our utility bill payments, household expenses and impulsive shopping depends on it.  Also, an emergency fund equivalent to 3-6 months of earnings protects you from any unforeseen and immediate requirement.

In this section, we look at some of the short-term savings instrument and how wise allocation to different assets can grow your money. 

When Short is Stout: Ultra Short Term Funds v/s Savings Account

Liquid Funds: A simpleton that we conveniently ignore at our cost!

 

Funds recommended

We strive to analyze funds with as long a comparable history as possible and only within their peer group. For a look at our methodology, please go to here. Please note that while we hope that these recommendations would be useful for investors, you are also advised to look at the fund's scheme information memorandum and statement of additional information.

Recommended Ultra Short Term Funds>>

Recommended Short Term Funds>>

Recommended Floating Rate Funds>>

Recommended Income Funds>>


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Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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