With fixed income instruments offering attractive returns, find out how to build a strong debt portfolio

economictimes.indiatimes.com:

Investors in the fixed income space are currently spoilt for choice as the segment is offering attractive returns. Small finance bank fixed deposits (FD) are offering up to 9%. The RBI Floating Rate Bond now pays 8.05%.

New online bond platforms are tempting investors to high-yield NCDs, offering a mouth-watering 11-13% per annum. This bonanza is sure to whet investors’ appetite, but it also presents a tricky scenario.

We typically park our money in fixed income instruments for safety. These investments help counter the fluctuations of higher-risk assets, such as equities, providing a degree of stability to the portfolio.

This shield can only work if the fixed income part of the portfolio is resilient to adversity. For this, having a proper mix of fixed income assets is critical. Diversification is not just for your equity portfolio.

Fixed income investments can also vary widely in risk and returns.


Not all bonds and FDs are the same. Different products serve different purposes. That is why it is equally important to strive for diversification within your fixed income portfolio.

In this week’s cover story, we outline a framework for building a safe, well diversified and, yet, potent fixed income portfolio. We also discuss how investors can safely navigate the high-yield, high-risk arena within fixed income.

BUILDING AN OPTIMISED FIXED INCOME PORTFOLIO
Return, liquidity and safety are key considerations while assessing any investment. Equity investors understandably seek to maximise returns, giving low priority to safety and liquidity.

Equities are a wealth generating vehicle. It is, therefore, reasonable to optimise returns in this asset class. When investing in fixed income, priorities must be different.