Fixed Income |
May 09, 2021What are Fixed Income securities? Who should invest?
The instruments provide a defined cash flow
periodically in return for the investment. The organization (government or
private) issued these securities treat them as a liability to be paid. Along
with the interest rate, the final value is also known to the investor at the
time of investment.
Characteristics
1. Taxation: The short-term capital gains are taxed based on the
investor’s tax slab and income while the long-term capital gains are taxed at
10% and 20% with and without indexation respectively.
2. Focus: The primary objective of such investments is not
seeking higher returns but protecting the principal amount by yielding a fixed
return. Another important goal fixed income achieves is by stabilizing the
returns in the fluctuating markets.
3. Comparison: While comparing the different types of fixed
income instruments, historically ETFs have always performed better than debt
funds due to its equity linked investment schemes. However, the money market
funds best suited for the short-term parking of funds do not yield a better
return.
4. Liquidity: One of the most important features of fixed income
investment is the high liquidity attached. The investor can access their
complete fund in a matter of a short time.
5. The portfolio that consists of fixed income is actively
managed by the fund manager to adjust as per the changing market interest rates
and dynamics.
Who Should Invest in Fixed Income?
Investors looking for a safe investment tool for
investment that is not much affected by the changing market conditions. Also,
the avid investor can choose to put a relatively smaller percentage of their
portfolio in such instruments to diversify and ensure stable returns. Apart
from these, the senior citizen also looks for such avenues that are low in risk
and provide fixed returns.