Investing in fixed income securities is more than just buying bonds and waiting for maturity. It requires carefully chosen strategies to balance income, risk, liquidity, and capital preservation. The right approach depends on market conditions, interest rate trends, and individual investor goals. This chapter dives deeper into key fixed income investment strategies, practical tips for implementation, and common pitfalls to avoid.
The buy and hold strategy is the simplest and most conservative fixed income approach. Investors purchase bonds and hold them to maturity, collecting periodic interest (coupons) along the way. This strategy is suited for those prioritising predictable income and capital preservation over speculation.
Advantages:
Challenges:
Example: A retiree in India buys government bonds with 10-year maturities to secure steady income without worrying about market fluctuations.
Laddering involves buying bonds with staggered maturities, say 1, 3, 5, 7, and 10 years. As each bond matures, the principal is reinvested at current interest rates. This strategy reduces interest rate risk and provides regular liquidity.
Benefits:
In a barbell strategy, investors allocate funds into short-term and long-term bonds but avoid medium-term maturities. The short-term bonds provide liquidity and protection against rising rates, while long-term bonds offer higher yields.
Advantages:
Risks:
The bullet strategy concentrates bond maturities around a single future date to meet a specific financial goal, such as funding a child’s college tuition or buying a house.
Use Case: An investor aiming to fund a large expense in five years buys bonds maturing near that time to align cash inflows with the financial need.
Active trading involves buying and selling bonds to capitalise on interest rate movements, credit rating changes, or yield curve shifts.
Requires:
Fixed income investing in India sees widespread use of buy and hold, laddering, and active management by mutual funds and retail investors. The government’s development bonds, tax-saving bonds, and corporate debt provide diverse options. RBI’s monetary policy strongly influences interest rates and thus strategy effectiveness.
Selecting and adapting fixed income strategies is critical for managing risk and achieving financial goals. By understanding the nuances of each approach, investors can build portfolios that balance income, safety, and growth. The next chapter will focus on Fixed Income Portfolio Management, emphasizing portfolio construction, monitoring, and adjustment techniques.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
Investments in securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed SEBI prescribed limit. The securities are quoted as an example and not as a recommendation. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673; MSE-1024, MCX-56285, NCDEX-1262.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
Investments in securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed SEBI prescribed limit. The securities are quoted as an example and not as a recommendation. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673; MSE-1024, MCX-56285, NCDEX-1262.
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