Things to check while investing in Fixed Income instruments
For all those who are looking at making some fixed income investments there are few things that they need to check before they actually decide about completing this process. Only when these points are addressed should the individual be confident that the fixed income investment will serve a specific purpose. This means avoiding some situations where the decision is not being made properly. This might seem to increase the work at the initial stage but the benefits that this brings out is far more as the gains will be significant for the individual over the longer time duration. Here are some of such situations and the manner in which they should be tackled.
There are many investors who do not look at the choices that are in front of them but just make an automatic allocation to a particular area. This is not a good way of going about the investment process because there is no chance or opportunity that is actually being given to the various alternatives in terms of checking whether there is a benefit that they offer. So investing only in recurring deposits without checking other alternatives would be an example of such a move. The other way would also be to look at whether there are some features that are suitable for a particular investor leading to a particular investment.
There can be a situation where there is the entire amount with an individual is being invested into debt like fixed deposits or there could be very little amount that is coming here because the figure is going elsewhere like real estate. Both of these are conditions that should be avoided because they lead to a situation where the entire investment is skewed as proper evaluation is not being undertaken of the various alternatives.
All choices to be considered
Another problem that a lot of people end up having is that they seem to have very few choices in front of them once they select a particular asset for making the investment. This could mean a position where they either think that when it comes to fixed income investments it means only fixed deposits or only small savings plans offered by the post office. Again the situation is such that there is a large choice available in all types of investments and hence this will have to be analysed and then the final decision has to be made. If this is not done then there could be a concentration of investments into just one sub area like say company fixed deposits while other alternatives like bonds or debentures might be completely avoided. This might not be the best solution for the requirement of the individual and hence this has to be taken into consideration.
Many investors tend to look at the fixed income investments in isolation but there is a need for them to actually consider this as a part of their overall portfolio. There has to be a match between the need of the individual and the particular investment and at the same time efforts have to be undertaken to ensure that there is no increase in the risk element that is generated when the portfolio is constructed. This means avoiding a similar kind of investment and spreading the investment across different institutions and options. Once this is done then there will be a proper way in which the overall risk will be contained.
It is only when there is a proper portfolio built up that has several elements and which covers all the requirements of the individual that there can be good results expected at the end of the day. This has to be considered as a team effort because the overall funds of the investor has to rise at the end of the day and not just one or two investments. In this sense that has to be right efforts so that good returns are earned and at the same time this beats inflation.