Steady income and capital preservation with fixed income securities
What are fixed income securities?
Fixed income securities refer to investment products that provide fixed returns over a certain period of time, based on their fixed interest rate. They are considered less risky
compared to equity investments, provide steady and predictable returns and suit those investors who prefer stability over returns
Equity and fixed income securities differ in how they pay out based on their profitability. Equity securities pay out dividends whereas fixed income securities pay out interest.
Types of Fixed Income Securities
In India, there are various types of fixed income securities available for investment. Here are some commonly known ones:
Government Bonds
These are debt securities issued by the Indian government, such as Sovereign Gold Bonds (SGBs), Treasury Bills, and Government Securities (G-Secs).
Corporate Bonds
These are debt instruments issued by corporations to raise capital. Investors lend money to the company in exchange for regular interest payments and the return of principal at maturity
Public Provident Fund (PPF)
PPF is a government-backed savings scheme with a fixed interest rate. It offers tax benefits and has a lock-in period of 15 years
Fixed Deposits (FDs)
Fixed deposits are offered by banks and non-banking financial companies (NBFCs). They allow individuals to invest a lump sum for a fixed period at a predetermined interest rate
Debentures issued by Financial Institutions
Financial institutions like National Bank for Agriculture and Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI) issue debentures that offer fixed returns
Non-Convertible Debentures (NCDs)
NCDs are long-term debt instruments issued by corporations, usually with a fixed interest rate. They cannot be converted into equity shares of the issuing company
National Savings Certificate (NSC)
NSC is a fixed income investment option offered by the Indian government. It has a fixed interest rate and a maturity period of five or ten years.
Post Office Monthly Income Scheme (POMIS)
POMIS is a savings scheme offered by the Indian post office. It provides a fixed monthly income for a specified period.
It is important for investors to evaluate their investment goals, risk tolerance, and return expectations while investing in different types of fixed income securities
Maximize your returns with low-risk fixed income securities
Fixed income securities are a popular investment option among investors due to their various advantages like
Stable Income Generation
Fixed income securities, such as bonds and debentures, provide a predictable stream of income through regular interest payments.
They are ideal for investors seeking a steady cash flow and a reliable source of income, especially during uncertain market conditions.
Capital Preservation
Fixed income securities are generally considered lower risk compared to equities or other volatile investments. They offer the
potential for capital preservation, making them attractive to conservative investors who prioritize wealth preservation over aggressive growth
Diversification
Including fixed income securities in your investment portfolio helps diversify risk. They often have a low correlation with equities, providing a level of stability during market fluctuations. By diversifying across
different types of fixed income securities, issuers, and maturities, you can enhance risk-adjusted returns and reduce overall portfolio volatility
Disadvantages of Fixed Income Securities
They come with a range of disadvantages :
Inflation poses a major threat to fixed income securities, as the interest rates on these securities are often fixed, making the returns’ real value decline over time with inflation
The prices of these securities respond inversely to interest rate changes. When interest rates change, the prices of these securities fluctuate resulting in capital loss for the investors
Inveting only in these securities may lead to a lack of diversification and an overall lower portfolio return
Diversify your investment portfolio with fixed income securities. Get started today!
Investing in fixed income securities is a crucial component of any diversified investment portfolio. The best fixed income securities to invest in may vary depending on one's investment goals and risk tolerance.
Firstly, Evaluate your risk tolerance and investment goals to choose the right type of fixed income investment i.e. government bonds, corporate bonds, treasury bills, NCDs, FDs etc
Next, do thorough research on the specific investment you want to opt for, including its credit rating and yield to maturity. One must also consider the taxes associated with the investment.
Another important aspect is timing the market. It is vital to have a clear understanding of bond market dynamics and interest rate fluctuations before making investment decisions.
It is also advisable to diversify your fixed-income investment portfolio across different types of securities, issuers, and maturity periods.
Lastly, monitor your investments regularly to ensure they are in line with your investment objectives.
Conclusion
To wrap up, individuals in search of a reliable income flow with minimal risk might find fixed income securities to be a promising investment opportunity. The diverse array of fixed income securities at hand offers investors varying
degrees of risk exposure and possible earnings. Though they offer several advantages, such as stability and predictable returns, these securities also have their disadvantages, including lower potential returns and susceptibility to changes in interest rates.
Ultimately, investing in these securities requires a careful analysis of one's investment objectives, risk tolerance, and financial situation. With a disciplined investment approach and professional guidance, investors can effectively incorporate fixed income securities
into their investment portfolio for a more diversified and balanced approach to wealth management
Frequently Asked Questions
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In India, there are various types of Fixed Income Securities available like government bonds, corporate bonds, treasury bills, debentures, fixed deposits, senior citizen saving schemes, etc.
The risk associated with Fixed income securities are broadly assessed in relation to the issuer. The securities issued by the Government and quasi-government authorities are considered to be
safer than those issued by private corporations. Even within private corporations, the issuers having higher credit ratings from the credit rating agencies are generally considered to be safer than ones having lower credit ratings.
The returns from fixed income securities is directly related to the risk perception of that instrument, which means, higher the risk perceived in an instrument, higher will be the rate of return expected from the security. Therefore, in general the Government securities will be available for a much lower rate of interest (return), than a security like corporate Fixed deposit.
A debenture refers to a type of long-term debt instrument that is issued by corporations, governments, and other organizations to raise funds from investors. It is an unsecured bond that does not have any collateral backing it up. The issuer promises to pay the lender the principal and interest periodically until the debenture matures.
Debentures are commonly used by companies to finance their operations, make acquisitions, or invest in expansion opportunities
A Non-Convertible Debenture (NCD) is a form of debt security that is released by a corporation and can't be converted into stocks of the same company. In simpler terms, it is a fixed-income security with a specific maturity date and a predetermined interest rate.
A sovereign bond or government bond is a type of debt security that is provided by a national government in order to fund its operations or spending. When an investor buys a government bond, they are essentially lending money to the government, which promises to pay back the principal amount plus interest at a fixed rate over a specified period of time.
A zero coupon bond is available where the interest payment is not made during its term. These bonds are sold at a lower price than their face value, but the bondholder will receive the full-face value upon maturity. They are commonly referred to as deep discount bonds due to the huge discount at which they are typically issued.
A debt instrument that corporations utilize to raise finance from investors is referred to as a corporate bond. These bonds are generally used to finance large-scale projects, expansions, or other initiatives that a corporation may not be able to cover with its existing resources.
Corporate fixed deposit is a type of investment where individuals or organizations can deposit their funds in a company for a fixed tenure. The deposit interest rate offered by the company surpasses that of banks for fixed deposits.
Capital Gain Bond is an investment instrument that offers tax exemption on long-term capital gains. These bonds are issued by the government and the proceeds are used for infrastructure development activities.
Peer to peer lending is a type of lending that allows individuals to lend money directly to other individuals online, without the need for a traditional financial intermediary such as a bank.
The tenure of investment in fixed income securities in India varies according to the type of security chosen by the investor. Generally, fixed income securities can have short-term, medium-term, or long-term tenure ranging from 3 months to 30 years.
Yes, Short term and long term fixed income securities are available for investment purposes ranging from 3 months to 30 years.
The name fixed income securities implies that the income generated from them is always fixed. However, this is not always the case. The interest rate on fixed income securities can change with market conditions. For example, if interest rates rise, the value of existing fixed income securities may decrease, which can result in a smaller return than expected
The tax implications on income from fixed income securities depend on several factors such as the type of security, the investor's tax bracket, and the duration of investment. Some fixed income securities are tax exempt, some are taxed at 20% while others are taxed at the marginal rate, .i.e the tax rate applicable to the individual concerned
Yes, fixed incomes securities are available in demat form also.
Certain fixed income securities are listed on stock exchanges in India. These securities are typically in the form of bonds or debentures issued by companies, government entities, or other financial institutions. They are traded on the debt segment of stock exchanges such as the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE).
When fixed income securities are listed on stock exchanges, investors have the opportunity to buy and sell them in the secondary market. This provides liquidity and allows investors to trade these securities before their maturity date. The listing of fixed income securities on stock exchanges also enables price discovery and transparency in the market.
It is important to note that not all fixed income securities are listed on stock exchanges. Some fixed income instruments, such as bank fixed deposits and certain government savings schemes, are not traded on stock exchanges but are offered directly by the issuing institutions.
Yes, it is possible to experience capital losses in fixed income securities. While fixed income securities are generally considered less risky than equity investments, they are still subject to certain factors that can impact their market value and potentially lead to capital losses. Here are a few reasons why capital losses can occur in fixed income securities:
1. Interest Rate Changes: Fixed income securities, such as bonds, have a fixed interest rate at the time of issuance. If interest rates rise in the market, newly issued bonds with higher yields become more attractive to investors. As a result, the market value of existing fixed income securities with lower yields may decline, leading to capital losses if sold before maturity.
2. Credit Risk: Fixed income securities carry credit risk, which refers to the possibility that the issuer may default on its payment obligations. If the market perceives increased credit risk associated with a particular issuer, it may lead to a decrease in the market value of their fixed income securities, resulting in capital losses.
3. Market Sentiment and Demand: The overall market sentiment and investor demand for fixed income securities can also impact their prices. If there is a decrease in demand or negative sentiment towards fixed income securities, their market value may decline, leading to capital losses.
Investment in fixed income securities is usually considered a safer choice when compared to equity, as they offer a predictable income stream and a low level of risk. However, there may be situations where the value of the securities may erode or the returns may not be generated as per expectations
Bonds and certificates of deposit are examples of fixed-income securities that provide a predictable investment return. However, there is no assurance or guarantee of earning income
Before committing to fixed income securities, investors need to carefully evaluate their investment goals and timeframe as these securities are primarily meant for long-term investments. It is crucial to keep this in mind. However, in many cases, investors can withdraw their investment from fixed income securities before maturity.
To buy fixed income securities, you can approach a brokerage house who deals in fixed income securities, who will help you with all the process and paperwork involved. Or write to us @support@dealplexus.com to get assistance.
If you are looking to buy Fixed Income securities and need assistance, DealPlexus is here to help. With their expert knowledge and understanding of the market, they can guide you through the process of purchasing these securities.
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