Investing in Debt

Investing in debt is the one of the best way of investing, considering the returns. In the recent times, it has become a popular form of securing the future whether it is your child’s marriage, higher studies or even planning for your retirement because it is considered more secure than equity. Before you take the leap, take a look at the three main aspects and invest your time in some knowledge, before you start off :

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1. Risk

Every investment sure has a certain risk that connected to it. Remember that if higher the risk, the returns will also be high. But, it is also a question of how much of the risk you will be able to afford.

– Evaluate credit risk

When you invest in a very specific company, measure its credit rating. So that you can get a plan of the risk you are getting ready to register for. Sometimes, there is also growing companies that are on public offers at attractive costs, but this does not necessitate the actual fact that you can gain profits. Taking into consideration the stability of the company, create an informed investment.

– Risk Appetite

This is a measure of how are you consider to a gain or loss. Your risk appetite determines how much and for how long you are willing to stay in the debt market.

– Diversify

Diversifying your portfolio is may be the best way for you to reduce your risk. Make your own research and invest across different types of debt and not just one particular type.


2. Returns

How much money you are going to put in for investments, depends on how much you are expecting from your investments. Create a clear financial plan for yourself so that you will know where and how much to invest.

– Interest rate fluctuations

Though the rate of interest on your returns is higher for blue-chip companies, be aware that there is a chance for fluctuations when there is a change in the economy such as the recent recession.

– Taxes

After doing all your research, before you are going to take the final step with putting in your money in the investments, you must make an estimate of how much of your returns will be taxable. There are various calculators available online, which will help you to count the value of returns that will reach you after deducting tax.


3. Liquidity

Liquidity basically means the ability to buy or sell a stock easily

– Exit route

If you feel that the debt market is not doing too well for you, or if you have sufficient proof to back it up. You can have your own exit route, like : choose the right moment to sell your debt portfolio in such a way that you make little or no loss against losing it all.

– Penalties

When you are going to try to sell before the maturity date, please be aware of the certain penalties that may be applicable.


Finally, gaining maximized returns is what everyone wants to focus on, however if you want to do that then there are a few things you will need to consider and carefully analyze. The best feature about debt investments mainly fixed income investments is that you get fixed returns despite market variations.


Source : ezinearticles