Fixed Income Investment

Fixed Income Investment

 

There are basically 2 types of investments. One which gives you a fixed income, one which does not gives you a fixed income.

Today we will learn about investments which give us fixed income.

 

For Whom?

  • For those whose daily living depends on the corpus of money that’s available. Especially for people whose source of monthly income is from pension, or for widows or single mothers not earning.
  • For those who are not comfortable with any risk in investments, who are conservative and can’t sleep well with any risk in money.
  • For elderly people. Higher the age, lesser the risk.

Let’s learn about fixed income instruments today. When you put money in bank deposits, the bank agrees to pay you a certain amount of fixed rate of interest, say 7.5%. The return on your investment here is fixed and it does not depend on outside factors like the stock market, economic scenario, bank’s performance, etc. This is known as fixed-income investments. Other examples are bonds, company fixed deposits, dividends on preference shares, corporate loans and pensions. Income from such investments is predictable. It may or may not be secured investments. The safest form of investment is considered to be in government bonds. The higher the safety on investments, the lower the return and vice versa. Higher the risk, higher the return.

If your life depends on your investments and there is no other source of income, I will recommend not taking any risk with money and investing in a fixed income. Most important priority for such people is a protection of capital. Do not get moved by wrong advice and do not take a risk with your money. Invest in bank fixed deposits, deposits of good companies, Kisan Vikas Patra, NSC; these are comparatively safe and secure investments. Investment in company deposits is relatively safe depending on the rating and credibility of issuing company. If you are investing in a company deposits, the first priority should be for a company with excellent credentials or with AAA credit rating. The rate of return offered by the company is not as important as the preservation of capital. Other options are taxable government bonds, tax-free bonds and institutional bonds such as NABARD capital gain bonds, PPF, for long-term planning.

There are other types of investments where, when you put your money, you are not sure of the return on those investments. The return on such investments depends on many factors like stock market movement, company performance, bond price fluctuations etc. investments in the share of companies, mutual funds, commodities, real estate, etc are some of the investments where returns are unpredictable. It may give very high returns or negative returns depending upon the market conditions.

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