Those people for whom financial stability is of prime importance will do well with a plan that primarily
invests in debt instruments which provide stability albeit with limited returns.
Traditional Pension Plans - The pool of funds created by the premiums of the insured persons is invested
only in debt instruments.
The debt part is invested
in debt instruments which are safer so as to minimize volatility and achieve and maintain stability.
Individuals may purchase bonds from a number of sources, such as full - service brokerage firms, banks or firms that
specialize in debt instruments, and discount brokers.
Of course, when you invest in lower credit rated investments, you take on credit risk — the other
risk in debt instruments, apart from interest rate risk.
Under conservative monthly income plan 15 - 30 % of the investment is made in equity securities and the
rest in debt instrument.
The typical tenure for this product is 10 years to 20 years and major portion of the investment in
done in debt instruments.
A traditional child insurance plan invests your premiums
mainly in debt instruments, such as corporate bonds and government securities, and offers guaranteed returns on maturity.
A monthly income plan is a debt oriented hybrid mutual fund scheme that invests around 70 - 80 % of its total corpus
in debt instruments such as debentures, government securities, etc..
MIP is a debt oriented hybrid mutual fund scheme that invests around 70 - 80 % of its total
corpus in debt instruments such as debentures, government securities, etc..
Debt Funds: Income, Fixed Interest and Bond Funds: These figure in the medium risk category and invest
in debt instruments like government securities, corporate bonds and other low - risk fixed income instruments.
Fixed - maturity plans (FMPs)-- They are similar to bank FDs and they invest
in debt instruments with maturity less than or equal to the maturity date of the scheme.
The fund has around 72 per cent invested
in debt instruments followed by equity at 25 per cent while remainder constitutes for cash as of October 31, 2017.
The Balanced funds have to maintain the portfolio according to their mandate, for example, debt oriented balanced funds have to keep at least 65 % of their investments
in Debt instruments hence in whenever Equity portfolio of the fund crosses 35 %, then Fund Manager will book profit from equities and rebalance the portfolio.
This fund invests
primarily in debt instruments such as Government Securities, Corporate Bonds, Money Market Instruments etc. issued primarily by Government of India / State Governments and to some extent in Corporate Bonds and Money Market Instruments.
Debt Instruments - The investment
made in debt instruments is intentioned at securing the capital rather than getting a return.
Conservative hybrid — these schemes invest around 75 - 90 % of total
assets in debt instruments and 10 - 25 % in equity instruments
Child Endowment Plans - The premium is invested
in debt instruments while the decision is at the kept with the insurance company.
Liquid funds are invested either in the money market or
in debt instruments with up to 90 days of a residual maturity period.
Such funds invest
in debt instruments such as Certificate of deposit, corporate and / or government papers and are less impacted with changes in market interest rates.
Child Endowment Plans - The premium paid by each insurer flows into a collective pool of funds that is invested
only in debt instruments.
Risk Considerations:
Investments in debt instruments may decline in value as the result of declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer - specific, or other conditions.
If someone has an adequate life cover through term insurance, invested adequately in Equity related instruments,
invested in debt instruments like PPF and then he can consider in these type of plans provided he / she is content with 5 % to 7 % returns for a period of around 20 years.
With a balance sheet comprised of close to $ 5 trillion
in debt instruments, of which about $ 1.8 trillion is in the form of mortgage - backed securities, any statement providing clarity on the sale of its assets will most likely trigger another rally in stocks, as investors will look to exit bond markets, especially the ones with lower credit ratings, to capitalise on the upsurge in corporate earnings.
Today we are going to cover a) What is the risk of investing
in debt instruments b) What feasible options are available to retail investors to invest in debt instruments There are few risks which we should be aware of 1.
When investing
in debt instruments, you're acting as the lender to the property owner or the deal sponsor.
Monthly Income Plan or the MIP is basically a debt - oriented hybrid mutual fund where nearly three - fourth of the corpus is invested
in debt instruments such as debentures, government securities, and the likes.
These funds can invest
in debt instruments having average maturity longer than 91 days (which is maximum average maturity of an instrument in which a liquid fund can invest).
Insofar as the Fund invests for cash return, it invests
in debt instruments, not common stocks.
The investment objective of the Scheme is to provide reasonable returns and high level of liquidity by investing
in debt instruments such as bonds, debentures and Government securities; and money market instruments such as treasury bills, commercial papers, certificates of deposit, including repos in permitted securities of different maturities, so as to spread the risk across different kinds of issuers in the debt markets.
Debt funds are schemes which invest
in debt instruments.
You should maintain a healthy mix of debt and equity in your portfolio, so for now you may invest around 20 %
in Debt instruments and 80 % in equity.
Investments
in debt instruments may be affected by changes in the creditworthiness of the issuer and are subject to the risk of non-payment of principal and interest.
It can also invest upto 20 % of its assets
in the debt instruments (bonds and notes) of these companies with no restrictions on the ratings of such debt.
Minimum 65 percent of the funds are invested in the equity vehicles and the remaining funds are invested
in the debt instruments.