If You Want Interest Income, Go For Bonds and Fixed Deposits
Fixed income investors are courted by the banks with attractive rates on fixed deposit and bonds, up 11.6% over five years. The poor performance of stock markets this year has encouraged investors to seek out these products.
There is also the gray market for bond issues, especially active after the bond rating SBI few months ago, for those hoping to win the list. Measure the appetite for fixed income funds have been launching a series of fixed maturity plans (FMP). They also have plans for short-term loan, which previously focused on institutional investors for the retail market aggressively. What and how to choose the investor?
First, the decision to buy is a strategic interest in products. Many investors do not rue it recorded profits of their stock portfolios in time to avoid losses. Unfortunately, no one can time the market. If investors want to protect their portfolios against sudden losses, should have an asset allocation plan, which includes fixed income investments.
They must be willing to give up some gains in return for fall protection on the stock market. Proportion invested in fixed income markets may vary, but it is there. 20% of the division could be a good starting point for those who do not look beyond equities. Since the attractive prices and market interest rates, is a good starting point to build this strategic component of their investment.
Second, high rates on the market today is unlikely to last forever. Reflect the high inflation rate and the increasing need for funds by borrowers. If an investor chooses a long-term, it is likely that market rates could fall before the Bonds. This will create capital gains for all previously existing bonds, higher rates.
Even as we speak, there is no liquid secondary bond market for private investors. In addition to the trading desks of brokers who are willing to buy these bonds in an agreement by agreement, the opportunities for private investors willing to share their limited obligations.
Therefore, those who buy fixed income products for today’s wealthy should prepare to keep them until maturity, instead of hoping to trade them. Investors should refrain from going into the sea tactical targeting with interest rate market, as it can be difficult to balance their interests and changes in equity.
Third, issuers of fixed income products in the long run today have an obligation to provide high market rates for their loans. Some of them may be strategically try to develop a retail market that offer high rates. They continue to offer strong rate depends on the size of its debt and balance sheets. Common sense says it may reduce the rate of interest over time or the cycle turns, or its cost of funds can become too high.
Source: [ET]
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