By Raghav Iyengar
With benefits such as capital preservation, income generation, the ability to offset the portfolio, and the potential to provide a hedge against inflation risk, fixed income assets have allowed investors to take advantage of different business cycles. of the market. However, it is imperative to dispel some common myths related to this asset class.
Myth 1: Fixed income assets do not offer growth opportunities
Growth investing is a style that focuses on investing in companies that promise long-term opportunities for expansion and wealth creation. While the approach has its own merits, ignoring fixed income assets altogether may not be a wise approach. Within fixed income securities, you have the opportunity to invest in short-term instruments that not only offer higher liquidity, but also easier access to capital.
Myth 2: Bonds won’t add value if rates keep rising
Interest rates and bonds have an inverse relationship. In order to protect their investments and expected returns against any unexpected changes, investors can opt to purchase bonds with fixed interest rates. In fact, short-term bond funds have the potential to act as a good entry point for investors who want to diversify their portfolio with exposure to debt. In a rising rate scenario, the short duration strategy adopted by these funds has the potential to reduce volatility and also provide interest income.
Myth 3: Fixed income securities are always less liquid than stocks
Generally, stocks are considered highly liquid because they can be easily traded on exchanges, but that doesn’t make fixed income investments completely illiquid. Investors have access to a wide range of debt securities that settle on different slices of the liquidity spectrum.
Myth 4: Age equals a fixed income investment
This is probably one of the biggest misconceptions. An investor’s exposure to an asset class is a function of their risk appetite, their investment corpus, their financial objective and the duration of their investment. Age is very little correlated.
Myth 5: Higher rewards require higher risk
No investment option comes with a real guarantee of return. It is still subject to a range of internal and external risks that no advisor, company or government can be able to fully control. It is advisable to assess your ability to take risks before focusing on investment avenues. Additionally, staying invested in high-quality assets (rated AA or higher) has been known to pay reasonable dividends.
The author is the commercial director of Axis AMC.