Fixed-income instruments are investment avenues where your principal amount (the money you invest) is perceived to be safe. The entity pays an interest amount on the principal you invest. The bank’s fixed deposit scheme is the simplest example of a fixed investment instrument. (View Highlight)
A few examples for fixed-income instruments are –
Bank’s Fixed deposits
Bonds issued by the Government of India (also called G Sec bonds and T Bills)
Bonds issued by Government related agencies such as GAIL, HUDCO, NHAI, etc
Bonds issued by corporate’s (Tata, Bajaj, Reliance, Adani) (View Highlight)
The Govt bonds are considered the safest investment, with zero risk to your investment, because, well, the govt can’t cheat and run away with your money. Corporate bonds are risky, though; investment in corporate bonds can go to zero, and we have seen plenty of such examples in the past. (View Highlight)
Investment in Equities involves buying shares of publicly listed companies. The shares are traded on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). (View Highlight)
Indian Equities have generated upwards of 12% CAGR (compound annual growth rate) over the past 10 to 15 years. (View Highlight)
Gold and silver, over the long term, have appreciated. Investments in these metals have yielded a CAGR return of approximately 5-8% over the last 20 years. (View Highlight)
It is best if your investments have a mix of all asset classes. It is wise to diversify your investment among the various asset classes. The technique of allocating money across asset classes is termed ‘Asset Allocation’, and we will discuss asset allocation later in Varsity. (View Highlight)
Typically investors should allocate at least 60% of their investable amount in equity, 20% in precious metals, and 20% in fixed-income investments. The percentage mix changes based on risk profile and age. For example, a retired person could invest 80% in fixed income (Govt bonds maybe), 10% in equity markets, and 10% in precious metals. (View Highlight)
