Fixed Income Securities
FIXED INCOME SECURITIES
Fixed Income can be a very important investment class by which one can diversify his/her portfolio to reduce risk.
Putting all your money into equities (read more about equity investment) can give you more returns but it does carry high risk as well. Diversification is a basic concept of financial planning and fixed income products come in handy to help us achieve this objective.
Let us see what are the different types of fixed income securities and how they help savvy investors who chose to put money in them.
How they work
When you buy a fixed income instrument, you are essentially lending money to a borrower. Money does not come free so you would expect something in return from the borrower.
The borrower issues out interest payments to you which could be paid either annually, quarterly, monthly or any other frequency that is pre-decided. These interest payments are called coupons. Since these coupons are fixed in nature, these instruments are called fixed income instruments.
The borrower also promises to return the money he borrowed from you. So, apart from a consistent income in the form of coupons, you also get your principal back.
Such products are available for different maturities and credit ratings. They are available in India through government schemes, company bonds and fixed deposits.
Advantages 1. These securities are very safe in nature. Since the risk is low, the returns are also very low. Investors who are looking to diversify into safe avenues should invest in these. Safety with low volatility are the main features of these products. 2. The coupons serve to offer a regular income at very low risk. These become ideal for risk averse investors, for example, people who have retired. 3. Such products are available for different maturities, so an investor can buy one by timing the exit of his investment from the instrument when he needs the money. 4. Such instruments are very liquid. In case money is
Fixed Income can be a very important investment class by which one can diversify his/her portfolio to reduce risk.
Putting all your money into equities (read more about equity investment) can give you more returns but it does carry high risk as well. Diversification is a basic concept of financial planning and fixed income products come in handy to help us achieve this objective.
Let us see what are the different types of fixed income securities and how they help savvy investors who chose to put money in them.
How they work
When you buy a fixed income instrument, you are essentially lending money to a borrower. Money does not come free so you would expect something in return from the borrower.
The borrower issues out interest payments to you which could be paid either annually, quarterly, monthly or any other frequency that is pre-decided. These interest payments are called coupons. Since these coupons are fixed in nature, these instruments are called fixed income instruments.
The borrower also promises to return the money he borrowed from you. So, apart from a consistent income in the form of coupons, you also get your principal back.
Such products are available for different maturities and credit ratings. They are available in India through government schemes, company bonds and fixed deposits.
Advantages 1. These securities are very safe in nature. Since the risk is low, the returns are also very low. Investors who are looking to diversify into safe avenues should invest in these. Safety with low volatility are the main features of these products. 2. The coupons serve to offer a regular income at very low risk. These become ideal for risk averse investors, for example, people who have retired. 3. Such products are available for different maturities, so an investor can buy one by timing the exit of his investment from the instrument when he needs the money. 4. Such instruments are very liquid. In case money is