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Jul 18, 2012, 03.08 PM IST
It is a general tendency of investors to put their money in fixed income instruments and totally forget about it later. However this leads to loss of opportunities where the timely monitor could earn us more wealth. Read this space to know the key factors that one should look at after investing in a fixed income investment.
There are fixed income products like deposits that investors put their money into but then they forget about it over a period of time. The consequences for this can be severe as there might be several things that are missed out and while this aspect might seem surprising for a lot of people it is a reality in this fast changing world. This is the reason why the investor has to ensure that they are looking for a few things with respect to their fixed income investments on a regular basis and that this is not missed out.
Time to maturity
The time remaining on the fixed income instrument till its maturity is something that has to be constantly monitored to know the period that still remains. When this is a long time away there is not much of a worry as long as the amount that is invested is earning returns and doing its job. However as the time period of maturity nears it is vital that the investor starts looking around and thinking about what will be done with the maturity amount.
It could be that there is already some use of the money that has been planned in terms of expenses and this was the reason for which the investment was actually made in the first place. If this is the case then there is not much for the investor to look at but if the amount has to be reinvested then there is a need to be alert about the opportunity where the overall goals of the investment are met and the amount can actually be reinvested properly. The reason why this activity can take up some time of the investor is due to the fact that there could be several fixed income instruments in the portfolio and hence at regular time intervals there could be in a position that requires some action.
The interest rate that is being earned on the fixed income instrument is also an important factor to consider. The interest rates by themselves might not give you much insight but when considered in the light of the prevailing situation it will give a clear indication of the kind of action that is actually required. If the interest rates on the existing fixed income instruments are high then the investor would like this to continue for as long as possible.
There can also be some worries on the horizon if it is evident that the investor is earning a high rate of interest on the existing investments but the rate has come down in the market consequent to the investment. This means that if the investment is rolled over or put somewhere else then the amount that the investor would earn could actually fall so this is something that has to be considered.
Several actions by the banks and financial institutions that are offering the fixed income investments would give an indication of the way in which things are moving and this would help the investor to ensure that they are able to plan their strategy accordingly. There could be a rise in the rates by a bank for specific time duration or there could be a cut in the rates by another institution for a specific band. This gives an indication of the type of money that is required by the institutions and the time period for which this is actually required. Hence the individual has to see the kind of indications that are given in this regard and then they will be able to frame their strategy accordingly. This will give them enough information about choosing a specific institution or a specific time period for the purpose of their fixed income investments.
One aspect that often fails to come to the notice of many people is the amount that is invested in different areas and its impact on the overall risk for the investor. There are times when there are fixed income investments that are made in large amounts so the number of instruments is just a few while the amount in each one of them is high. This might not be the right strategy in case the money that is invested here is required after a certain point of time wherein there might be an impact on the overall portfolio of the investor. The other thing is that there could also be a concentration of investments with just one institution and while this might not be much of a concern in case of most banks there might be some effort to use more than one entity as this might also give the benefit of better conditions or returns for the investor.
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