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Word stacks daily february 14 202212/25/2023 ![]() ![]() For this bucket, you may target investments in high-yield NCDs or gilt and long-duration funds. The idea of any tactical allocation is to play the credit cycle or take advantage of interest rate swings to give a boost to the overall portfolio. This bucket represents the opportunistic part of your fixed income portfolio. Also, stay away from annuity products, as well as guaranteed return plans offered by insurers. As a rule, do not venture into high-yield (credit risk) or duration strategies (interest rate risk) for the stability bucket. Half of the accumulated corpus can be withdrawn for the girl’s higher education needs at 18 years of age. The account can be closed after 21 years or on the marriage of the girl, whichever is earlier. Some risk needs to be taken by diversifying beyond FDs.” “Most FDs are unable to beat inflation, yielding negative real returns. Parents of a girl child can also take the benefit of Sukanya Samriddhi Yojana, which also fetches guaranteed returns (currently 8%) along with the EEE taxation status. The guaranteed return, along with EEE tax exemption status, at all three levels-contribution, interest payout and maturity- make these the best vehicles for this bucket. The Employee Provident Fund (EPF) and Public Provident Fund (PPF) would feature prominently in this bucket. The long-term stability bucket will cover instruments with a long lock-in period or maturity profile. Keep in mind that the interest income is taxable and there is no premature withdrawal option, except for senior citizens. It has a tenure of seven years, and the interest rate is reset every six months. For those seeking assured regular payouts, the RBI Floating Rate Bond is a good option. Apart from these, target maturity funds of five-seven years’ tenure or mediumduration debt funds fit into this bucket. Rather than wait to catch the peak rates, it appears prudent to lock in now. Top-quality NBFCs are offering returns in excess of 8%. Locking into five-year FDs and NCDs makes sense now. The medium-term bucket would cater to cash-flow needs of over four to eight years. Small finance banks are offering attractive FD ratesīank deposits are safer than those with NBFCs because of their deposit insurance cover of up to Rs.5 lakh. Ideally, up to six months’ worth of your household expenses must be parked in a mix of bank fixed deposits and liquid funds. It is a job that is best left to fixed income. A solid emergency fund is one that is easily accessible at a very short notice and is immune to value erosion. Without this buffer, you would be forced to dip into the pool of investments meant for key life goals. This is the emergency corpus that will come to your rescue during specific events like a sudden job loss, prolonged illness or accident. Demarcate the entire portfolio into three distinct buckets, each serving a different purpose.Įvery individual needs a money pot that can serve as a backstop during times of distress. With this framework as the backdrop, experts advise investors to create a bucket strategy within fixed income. The fixed income universe comes with a diverse range of risk-return options with their own safety and liquidity characteristics. To match inflation, or even beat it, some risk needs to be taken by diversifying beyond FDs.” If you are averse to risk, you need to be comfortable with a lower return. Anshul Gupta, Co-Founder and CIO, Wint Wealth, avers, “Most FDs are unable to beat inflation, yielding negative real returns. If you want a higher return, you need to take more risks. Return and risk are two sides of the same coin. Return should get its due only after safety and liquidity. ![]()
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