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!
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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>>
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IT'S All ABOUT The Yield
With fixed income securities, your total return on investment is denoted by its “yield” which depends on:
- Face Value (how much you paid for it initially)
- Coupon Value (rate of interest you receive periodically)
- Duration (when will the security be redeemed if you wish to hold it to maturity)
- 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:
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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
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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.
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