Fixed-income investments: Three factors to consider when rebalancing your portfolio

When rejigging your investments, investors must keep in mind that all investments they make should not only focus on returns. While the aim of investing in equities should be higher returns, fixed-income investments should focus on stability.

What are fixed-income investments?

Fixed-income investments are investments that provide a fixed or stable return on investment over a specified period of time.  These can be used by investors to diversify their portfolio given these are not as risky as derivatives and equities. Because the returns in fixed-income investments are reliable, it is particularly popular amongst senior citizens.

How to rebalance your portfolio with fixed-income instruments?

“Bonds and other fixed-income securities are essential components of diverse portfolios, and keeping the right mix of these securities can have a big impact on an investor’s overall financial health. The idea of asset allocation and the significance of regular rebalancing are central to this trip,” said Abhijit Roy, CEO, GoldenPi.

Three factors to consider when rebalancing

While there is no single ideal fixed-income portfolio that fits everyone, it’s important to consider your individual investment objectives, risk tolerance, and income status.

“Investors should consider their asset allocation, investment goals, risk tolerance, market conditions, individual investment performance, tax ramifications, fees, diversification, and personal circumstances prior to rebalancing,” said Abhijit Roy.

Investors frequently have long-term financial objectives, including retiring early or paying for their child’s education. For the portfolio to continue moving in the direction of achieving these goals, rebalancing is crucial. 

It’s significant to remember that a person’s risk profile affects how their assets are allocated.  As per the GoldenPi CEO, a risk-taker can invest 70% of their portfolio in stocks, whereas a prudent investor would choose to invest only 30%.

For individuals who need quick access to their money in the short term and desire flexibility in withdrawing their funds, Abhijit Roy said that they might want to consider placing their funds in liquid mutual funds or exploring the option of making overnight investments within these funds. 

He further added that investors with one, two, or three years of horizon may find that bonds and debentures offer a credible alternative to debt mutual funds. 

Fixed-income investment options

Individual bonds are among the most popular varieties of this type of investment. These types of instruments include bonds, certificates of deposit (CDs), money market funds, fixed annuities, fixed deposits, government-backed schemes, Post Office Savings Schemes, Exchange-Traded Funds (ETF), and so on. 

These fixed-income investment options ensure guaranteed returns and the safety of capital

Public Provident Fund (PPF)

Bank Fixed Deposits (Bank FDs)

RBI Floating Rate Savings Bonds

Senior Citizen Savings Scheme (SCSS)

Post Office National Savings Monthly Income Account (POMIS)

Sukanya Samriddhi Yojana (SSY)

National Savings Certificates (NSC)

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 13 Oct 2023, 02:04 PM IST

 

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