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Fixed Income Investments Are Your Best Bet in A Volatile Market, Here’s Why
- In the world of finance, especially stocks, markets can swing suddenly. Like a pendulum, or a sudden change in the weather, with dark clouds appearing overhead when it looked like it was going to be a warm, sunny day.
- So what do you invest in? Do you just make safe, long term investments that hopefully weather out market fluctuations, or do you invest in boring old fixed deposits that offer returns that more or less are at the same level as inflation?
- Whether you’re looking to diversify your debt portfolio, or create a fixed income portfolio, fixed income investments can be the solid rock that keeps your investment portfolio afloat in the case of worst case scenarios such as sudden market crashes, or general market lulls and economic down periods.
- Okay, okay, now that we have your attention, what exactly are fixed income investments? And fixed income portfolios? Well, that’s what we’re going to turn our attention to today.
What Are Fixed Income Investments
Fixed income investments are a safe, low risk investment strategy or option. They’re focused on generating consistent, fixed payments from assets such as bonds, money market funds, deposit certificates, et cetera.
Now, these assets are mostly backed by securities, thereby providing a consistent, fixed stream of income.
How Do You Make Money From Fixed Income Investments?
The way fixed income investments work, is by loaning money or giving debt to entities such as banks, governments, or corporations. In return, the investor gets regular interest payments.
In this way, fixed income investments can provide you with a stable income stream consisting of interest, dividends, even helping to mitigate market risk, earn passive income, and also preserving capital.
Here are some common type of fixed income investments:
- Bonds: These can be seen as loans given to governments or organizations. The person who invests gets regular interest payments and the initial amount of their investment returned when it reaches its end date.
- Certificates of Deposit (CDs): These are accounts for saving provided by banks, where a fixed interest rate is earned over an agreed length of time.
- Treasury Bills: These are debt papers of the government that have a short-term duration and give an assured yield.
Important Features of Fixed Income Investments
- Steady, predictable income – Investors receive regular interest payments at a fixed rate.
- Lower risk – Fixed income investments are generally considered lower-risk than stocks.
- Capital preservation – Investors typically get their original investment back at maturity.
How Big Are Fixed Income Investments in India?
Deutsche states that the market size of fixed income investments in India reached approximately Rs. 205.3 lakh crore by September 2023, with government bonds accounting for around 78% and corporate bonds contributing roughly 22% to the total market share.
The Centrum Wealth report predicts that the fixed income market in India will expand by about 6-7% for 2024. This growth forecast aligns with the stability and attractiveness of these types of investments, which form an important part of India’s financial scene.
What Fixed Income Investments Provide
In the world of alternative investments in India, a very appealing aspect is consisted fixed income. For example, if you invest in a fixed income security that is backed by a bond with a fixed interest rate of 5% annually, no matter the market conditions, you’ll receive that 5% interest payment like clockwork.
This reliable, steady income provides peace of mind, and is a good weapon to have in a diversified portfolio, especially for retirees or those aiming to invest to cover living expenses.
The Value of Stable Income in Uncertain Times
When the market is unpredictable, stability is very valuable. This stability can be found in fixed income investments.
For instance, consider bonds. If you decide to invest in a bond, what you are actually doing is giving a loan to the issuer – who can be a government body or company. In return for this loan, they promise to pay interest on it regularly and give back your original investment amount once the time period for which bond was issued comes to an end – also known as maturity.
Compared to stocks, bonds are not affected as much by the ups and downs of market emotions. Even if stock markets suffer a significant drop, bonds can work like a shock absorber. They help in reducing the impact on your total investment collection.
Diversification Benefits
Diversification, which is the golden rule of investing, includes fixed income investments as a vital part in creating a balanced portfolio. By distributing your investments into various asset classes like stocks, bonds and cash equivalents you can decrease the total danger of your portfolio.
When the market becomes unstable, having some of your portfolio invested in fixed income assets can assist in balancing out possible losses from more risky holdings like stocks. In other words, it is akin to setting up a safety cushion for safeguarding your riches when markets experience turbulence.
Bottom Line: Invest With Assetmonk
For any successful investment, finding the right balance between risk and reward is key. Factors such as your risk tolerance, investment goals, desire for stable monthly income or long term potential goals, all play a huge role.
The best way to do that is by strategically planning out your investment strategy, and creating space for a number of diversified investments in your portfolio. Striking the right balance helps investors remain confident even in the face of market fluctuations.
Assetmonk, a new age alternative investment platform specialising in commercial real estate and fractional ownership of high end commercial properties, is always ready to guide investors on their journey towards building a well-rounded and prosperous portfolio.
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