Your fixed income portfolio to fetch higher potential returns

Fixed income investments are investments that provide a fixed or stable return on investment over a specified period of time. These types of instruments include bonds, certificates of deposit (CDs), treasury securities, money market funds, fixed annuities, fixed deposits, govt backed schemes, and so on. Let’s know from our different industry experts, what your fixed income portfolio should include fetching maximum potential returns.

Mayank Bhantanagar, Chief Operating Officer, FinEdge

We seem to be nearing terminal interest rates in the current hike cycle. Hence, the probability of capital gains in long-term debt funds has gone up. To take advantage of this, fixed income investors could consider making a tactical allocation to GILT Fund and longer maturity debt funds, but with an understanding of the risks involved as they could be volatile in case of negative inflation surprises. A staggered entry into long term debt is a better strategy than a lump sum investment.

In addition, TMF’s (Target Maturity Funds) with a residual maturity of 3-4 years can be considered. Most of them have a YTM of 7.4% to 7.6% at present with little or no credit risk, so one can be reasonably assured of earning these returns (pre-tax) over the next 3 years. Investors should know that TMF returns are not guaranteed and since their NAV's are marked to market, they will be subject to interest rate-led volatility during this investment tenure.

Short term investors can invest into liquid funds now, as the tighter liquidity conditions compared to a year or two ago would be a positive for them. Liquid fund returns have already picked up, having returned an average of 5.7% over the past year. We can expect this trend to continue for now.

Satyen Kothari, the founder and CEO of Cube Wealth

Fixed-income instruments can play a crucial role in building an inflation-proof portfolio and mitigating market volatility. These instruments provide a predictable stream of income and can offer protection against inflation, helping investors beat inflation and preserve purchasing power over time.

Short-term bonds can be beneficial in managing market volatility and inflation risk. Compared to long-term bonds, short-term bonds tend to be less sensitive to changes in interest rates and inflation expectations, making them more resilient during periods of market volatility and inflationary pressures, providing stability to the portfolio.

Floating-rate bonds are another option to combat inflation. These bonds have interest rates that adjust periodically, typically based on a benchmark rate. When interest rates rise, the interest payments on floating-rate bonds increase, helping to offset the impact of inflation on purchasing power.

Furthermore, diversification across different sectors, geographies, and credit qualities can help spread risk and reduce the impact of market volatility and inflation on the portfolio. High-quality bonds, such as investment-grade corporate bonds and municipal bonds, tend to be less susceptible to default risk, providing stability during market turbulence.

Regularly reviewing and rebalancing the portfolio, along with seeking professional advice, can ensure that the fixed income holdings are aligned with the investor's goals and risk tolerance, and provide a robust strategy to combat market volatility and inflation.

In summary, a well-diversified portfolio of fixed income instruments, including short-term bonds, floating rate bonds, and high-quality bonds, can help investors combat market volatility, protect against inflation, and preserve purchasing power over time, making them an essential component of an inflation-proof portfolio.

Remember, no investment strategy is completely full proof, and there is always some degree of risk involved in investing. It's important to carefully consider your risk tolerance, investment goals, and financial situation before making any investment decisions.

Pratik Vaidya, MD & CVO, Karma Global, a tech enabled HR & Compliance Organisation

As I see, this is dependent on two factors, one is saving for retirement and the other is the preparation for some long term goal.  Of course, again it all depends on the current financial status and how much of fixed income one desires at a later date based on the current income potential.

Some of the fixed term retirement options can be : One can accumulate good stocks in the portfolio or look at capital preservation or at some bond holdings.  

But there are good sides and not so good to every gainful transaction that we look at from the market perspective, However, in the case of futuristic fixed income, one will face the interest rate risk, inflation risk, may be liquidity risk.  In the case of interest risk, as we have witnessed currently with FD rates rising from what it was last 2 years at 5.50 p.a. to some banks even offering 8.00% p.a. the interest rate will surely be a cause for worry because of price volatility that happens in the markets.  Also, in the case of inflation if this outspaces the parked amount, the purchasing power will get affected.

There are other instruments like mutual funds and exchange traded funds especially of  trust worthy investing giant firms flushed with lot of potential and who offer different income investment solutions but as said, that there are associated risks and one has to be careful how you  ploughs your  funds , its  reliability and the returns to get the best return income for the future retirement time on a fixed basis.

What drives people to look at a safe loaded retirement life is the fear factor which varies from each individual.  People can get desire to park for the future from the personal risks one fears or the health risk or financial risk or the changes in governance and its policies.  

I would personally recommend the safest bet will be to park in low risk investments and savings options with guaranteed growth like fixed annuities, treasury securities, and other high return Government schemes.

Prateek Toshniwal, Serial Investor, Financial Advisor and Co-Founder of IVY Growth Associates (India) | MI Capital (UAE)

To potentially increase your fixed income portfolio returns, it's important to diversify your investments. This means investing in a mix of fixed-income securities with different maturities, credit ratings, and issuers. You can also consider investing in high-yield bonds or emerging market debt, which offer higher yields but come with higher risk. 

Another strategy is to use bond ladders, where you buy bonds with different maturities spaced out evenly over time. This strategy helps reduce interest rate risk and provides a consistent stream of income. Finally, you can consider investing in ETFs or mutual funds that offer professional management and diversification. However, it's important to keep in mind that these strategies come with increased risk and you should consult with a financial advisor before making any investment decisions.

Edul Patel, CEO and Co-Founder of Mudrex

While there is no single ideal fixed income portfolio that fits everyone, it's important to consider your individual investment objectives, risk tolerance, and income status. Nevertheless, there are some general strategies that can help generate higher returns. For example, diversification by investing in a mix of fixed income securities such as bonds and mortgage-backed securities can be an effective approach. Additionally, investing consistently for the long-term and regularly rebalancing your portfolio can also help achieve optimal results.

Ravinder Voomidisingh CFA, COO IndiaP2P.com

Investments in fixed-income securities, in our opinion, will perform well in FY24. The Consumer Price Index has dropped below 6%, and the RBI's MPC has halted increases in policy rates, thus it appears that we are at the peak or close to the peak of interest rate cycles.

In addition to sustained GDP growth rate expectations and an RBI consumer confidence index at three-year highs, 10 year government bond yields are above 7%. We think now is a good moment to put more money into fixed income with a horizon of two to three years.

Babita Rani, Tax Consultant 

Investments in fixed income provide a fixed rate of return with interest accruing over a defined time period. Since that they are less hazardous than futures and stocks, investors can utilise them to diversify their portfolio. Fixed income investments are especially well-liked by elderly investors because their returns are dependable, and they provide a stream of return on a set timetable. The reward might, however, differ in size. Individual bonds are among the most popular varieties of this type of investment. Bond funds, Post Office Savings Schemes, Corporate Deposits, Certificates of Deposit, Exchange-Traded Funds (ETF), and money market funds are also included in this category. It's essential to understand that fixed income funds are only one type of funds within the mutual fund industry. Their predicted profits and investing philosophy determine who they are.