Fixed Income Investment: Why is it important?

Today, there are multiple investment opportunities, such as equities, fixed income investment, real estate, crypto, gold, and many more. And if you’re an investor thinking from a long-term return perspective, it makes absolute sense to invest in high-return assets such as crypto and equity.

But, if you wish to incorporate a level of safety and stability into wealth management, how would you do that? Is there a secret investment mantra or a foolproof solution that fits everyone?

Unfortunately, the answer is NO.

But if you are looking to bring stability and safety to wealth management, investing in fixed income is the way to go.

This article will focus on fixed-income securities and why they are an essential arsenal in your overall portfolio. 

What are Fixed-Income Securities?

Fixed-income securities are an investment opportunity wherein the corporations raise funds to finance their project or fund their operations by issuing an investment product. By investing in these products, you will get a fixed amount of interest, typically in the form of coupons. The interest is usually paid semiannually, and the principal is returned to the investor at maturity.

What are the Types of Fixed Income Investment opportunities available?

Gone are the days when Fixed-Income securities only meant a handful of investment options like Bank Fixed Deposits, Public Provident Fund, and National Saving Certificates.

Today there are ample opportunities in the Fixed-Income asset class with treasury bonds, corporate bonds, and debt mutual funds providing higher returns than traditional options and lower risks than equity options.

Here are a Few Advantages of Investing in Fixed-Income Investments:

Diversification:

• Fixed income as an asset class adds to the stability & diversification of your overall portfolio.
• While the price of fixed-income securities like bonds doesn’t remain the same throughout its life, their volatility is considerably lower than that of equity stocks.

Principal Protection:

• Secured debt instruments enjoy an additional layer of support in the underlying collateral, which acts as a safety net to ensure principal protection.
• Further, debt investors always benefit from seniority to claim the amount due to them instead of equity investors.
• However, it’s important to know that just like any other investment, there is always an element of risk depending on the nature of the Fixed-Income investment.

Regular Income:

• The fixed-Income investment provides the comfort of a regular stream of income in the form of interest.
• Also, certain Fixed Income products like Market Linked Debentures (MLD) have differential tax rates while products like Public Provident Fund (PPF) are exempt from tax on coupon payments.

Conclusion:

If you want to achieve stability in your investments and earn money simultaneously, the most straightforward approach is to diversify the wealth among various asset classes.

Always remember to consider the following before deciding on asset allocation:

• What is your risk appetite?
• What are your cash outflow requirements?
• What is the level of volatility that you can absorb?

If you are looking to grow your wealth, you may want to consider some of the options presented in this article. Contact us today at plutus.retail@credavenue.com