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WHY INVESTING IN FIXED INCOME INSTRUMENTS |
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Introduction |
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Fixed-income instruments in India typically include company bonds, fixed deposits and government schemes. |
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Low risk tolerance |
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One of the key benefits of fixed-income instruments is low risk i.e. the relative safety of principal and a predictable rate of return (yield). If your risk tolerance level is low, fixed-income investments might suit your investment needs better. |
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Need for returns in the short-term |
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Investment in equity shares is recommended only for that portion of your wealth for which you are unlikely to have a need in the short-term, at least five-years. |
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Consequently, the money that you are likely to need in the short-term (for capital or other expenses), should be invested in fixed-income instruments. |
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Predictable versus Uncertain Returns |
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Returns from fixed-income instruments are predictable i.e. they offer a fixed rate of return. In comparison, returns from shares are uncertain. If you need a certain predictable stream of income, fixed-income instruments are recommended. |
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