Fixed income instruments or fixed income securities, provides a regular return in the form of fixed interest payment as well as the eventual return of the principal investment bond at the bond’s maturity. The payments for fixed-income options are known in advance, unlike the valuable income securities. Fixed-income products offer investors a reliable stream of fixed-rate periodic interest payments (known as coupon payments).
Bonds are the common form of fixed-income instruments and they are available as municipal bonds, government bonds, and corporate bonds. There are a range of factors which help to rate bonds and these ratings can influence the viability of a bond including the interest rate risk, the credit associated with the individual bonds or the user.
Types of Fixed Income Instrument
In India there are several common known forms of fixed income instruments. Out of which most common Fixed Income Instruments are listed here.
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Bank Fixed Deposits (FDs):
Offered by banks for fixed periods at predetermined interest rates. They are considered low-risk due to the deposit insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
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Government Savings Schemes:
- Public Provident Fund (PPF): The Public Provident Fund is a long-term savings scheme backed by the Government of India. It offers attractive interest rates and tax benefits under Section 80C of the Income Tax Act. The investment tenure is 15 years, extendable in blocks of 5 years.
- National Savings Certificate (NSC): National Savings Certificates are government-backed savings instruments offering fixed returns with a maturity period of 5 years. They are available at post offices and offer tax benefits under Section 80C of the Income Tax Act.
- Sukanya Samriddhi Yojana: Scheme for the benefit of the girl child, offering higher interest rates and tax benefits.
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Corporate Fixed Deposits:
Offered by non-banking financial companies (NBFCs) and corporates, providing higher interest rates than bank FDs but with varying levels of risk.
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Bonds:
- Government Bonds: Issued by the central or state governments, offering fixed interest rates and varying tenures. The Reserve Bank of India issues various bonds, such as the Floating Rate Savings Bonds and the Sovereign Gold Bonds. These bonds are government-backed and offer fixed or variable interest rates.
- Corporate Bonds: Issued by companies to raise funds, offering fixed interest payments and varying levels of credit risk.
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Non-Convertible Debentures (NCDs):
Non-Convertible Debentures are long-term debt instruments issued by companies. They cannot be converted into equity shares and usually offer higher interest rates than convertible debentures.
Secured NCDs: Backed by the issuer's assets.
Unsecured NCDs: Not backed by specific assets.
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Fixed Maturity Plans (FMPs):
Mutual fund schemes with a fixed tenure that invest in debt instruments with matching maturities, offering predictable returns.
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Post Office Monthly Income Scheme (POMIS):
Investment scheme by India Post, offering fixed monthly income over a 5-year tenure.
Finberg’s support for fixed-income instruments undermines its fundamental role in modern investment strategies. Its abiding commitment towards stability and consistent returns undermines the virtues of these instruments as essential components of diversified portfolios. The inherent volatility of equity markets prompts Finberg to emphasise the importance of mitigating risk via the inclusion of fixed-income securities.
- Fixed income instruments form the cornerstone of investment portfolios that offer stability and predictable returns compared to the volatility of equities.
- Also termed fixed-income securities, they provide investors with a predetermined stream of income over a specified period.
- Fixed Income instruments surround a wide range of assets, each catered to meet different risk appetites and investment objectives. Ranging from government bonds to corporate bonds, mortgages, and certificates of deposits (CDs), fixed-income instruments form the base of many investment strategies.
From Finberg’s point of view, it serves as pillars of financial security that offers investors a reliable source of income irrespective of market fluctuations. By allocating a portion of portfolios to bonds, CDs, and other fixed-return investments Finberg affirms a balanced mix of risk and reward. Moreover, the predictable nature of monthly fixed-income investments matches Finberg’s philosophy of long-term wealth preservation.
Why you should choose finberg to work with
Are you looking for stability and reliable returns in your investment portfolio? Finberg is the perfect choice for you as it is a trusted partner in fixed-income instruments. Having a steady commitment towards excellence and client satisfaction, we offer unparalleled support for individuals seeking to optimise their investment strategy with fixed-income options.
Finberg understands the importance of preserving capital while generating steady income, especially during unpredictable economic times. We specialise in a wide range of fixed-income instruments that include bonds, money market securities, and certificates of deposit carefully selected to suit various risk profiles and investment objectives.
We’re here to assist a conservative investor looking for low-risk options or looking to diversify their portfolio with stable income streams. Our team of seasoned professionals brings years of experience and expertise into the picture by providing personalised guidance catering to the needs of your unique financial situation and goals.
When selecting bonds for investment, there are several key points to consider to make an informed decision. Here are the main factors we evaluate to gain maximum return and stay away from Fraud:
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Credit Quality and Risk:
Credit Rating: Check the bond's credit rating assigned by rating agencies (e.g., AAA, AA, A, BBB, etc.). Higher ratings indicate lower credit risk.
Issuer’s Financial Health: Assess the issuer’s financial stability and ability to meet its debt obligations. This includes reviewing financial statements and understanding the issuer’s business and industry.
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Yield and Coupon Rate:
Coupon Rate: This is the annual interest rate paid on the bond, expressed as a percentage of the bond's face value. Compare the coupon rate with prevailing interest rates to gauge the bond’s attractiveness.
Yield to Maturity (YTM): Calculate the total return an investor can expect if the bond is held until maturity, considering both coupon payments and any capital gain or loss if the bond is purchased at a premium or discount.
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Maturity Date and Duration:
Maturity: Determine when the bond will mature and the investor will receive the principal back. Shorter maturities generally have lower interest rate risk but may offer lower yields.
Duration: Measure of the bond's sensitivity to interest rate changes. Longer durations imply higher sensitivity to interest rate movements.
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Liquidity:
Consider how easily the bond can be bought or sold in the secondary market. Highly liquid bonds typically have lower bid-ask spreads and greater trading volume.
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Tax Considerations:
Understand the tax implications of investing in bonds. Interest income from most bonds is taxable, but certain bonds (like municipal bonds) may offer tax advantages at the federal, state, or local level.
- Call and Put Provisions:
Some bonds come with options that allow the issuer or the investor to redeem the bond before its maturity date.
Callable Bonds: Issuers can redeem before maturity, usually at a premium.
Puttable Bonds: Investors can sell back to the issuer before maturity.
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Market Conditions:
Evaluate prevailing interest rates and economic conditions. Bonds generally have an inverse relationship with interest rates; when rates rise, bond prices tend to fall.
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Diversification:
Spread investments across bonds with different issuers, maturities, and credit ratings to mitigate risk.
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Purpose and Goals:
Align bond selection with your investment objectives, whether it’s income generation, capital preservation, or portfolio diversification.
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Costs and Fees:
Consider transaction costs, commissions, and any management fees associated with bond investments, especially when buying through brokerage accounts or funds.
Amidst comprehensive research and analysis, we identify high-quality fixed-income opportunities that offer competitive yields and mitigate risk. Our dedicated customer support is ready to assist you every step of the way.
Don’t miss out on a golden opportunity with the potential to enhance your investment portfolio. Join the uncountable investors who have opted for Finberg as their preferred medium for fixed-income instruments and take the initial step towards achieving your financial goals today.
At FinBerg Private Wealth, satisfaction isn't an option it's a certainty. Our expert team delivers tailored investment strategies that guarantee to meet your unique financial goals. Trust us to guide you to success with confidence and precision.