For the past few months, the stock market has been all over the place – rising 300 points one day and falling an equal amount a couple of days later. The end result of such gyrations have left Sensex and Nifty with negligible gains since Jan ‘15.
An investment portfolio that is overweight in stocks may have given zero or even negative returns. Though a stock market seldom moves in one direction – even during rampant bull or bear markets – periods of uncertainty and volatility often come as a jolt to small investors.
To ensure a less volatile and more stable investment returns, it is imperative that investors appreciate and understand the need for a proper asset allocation plan. That means, balancing your stock portfolio with fixed income instruments like bonds/debentures.
As per my interactions with many small investors, very few of them fully understand the benefit of bonds/debentures. To most small investors, fixed income instruments mean bank fixed deposit, or Post Office MIS, or NSC.
Debt oriented mutual funds and tax free bonds often provide better post-tax returns, and have the added advantage of being liquid. That means they are more easily tradable.
If you want to learn the ABCs of investing in bonds and how interest rates affect returns, check out a set of links to articles published in investopedia.com: