Mutual funds that invest both in debt and equity markets are called balanced mutual funds or simply balanced fund. A typical balanced fund would be almost equally invested in both the markets. The variations are equity funds that invest predominantly in equity (about 70%) and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component, by bringing in debt. Similarly, there are predominantly debt funds (over 70% in debt securities) which invest in equity, to provide some growth potential to their funds. A balanced fund also tends to provide investors exposure to both equity and debt markets in one product. Therefore, the benefits of investment diversification get further enhanced as equity and debt markets have different risk and return profiles.
Investment Ideas
Types of Debt Mutual Funds
Debt mutual funds are those that predominantly invest in debt securities. Since most debt securities pay periodic interest to investors, these funds are also known as income funds. However, it must be remembered that funds investing in debt products can also offer a growth option to their investors. What is more important is that the portfolio is predominantly made up of debt securities. The universe of debt securities comprises of long-term instruments such as bonds issued by central and state governments, public sector organizations, public financial institutions and private sector companies; and short-term instruments such as call money lending, commercial papers and certificates of deposits and treasury bills. Debt funds tend to create a variety of options for investors by choosing one or more of the segments of the debt markets in their investment portfolio. Liquid Funds And Money Market Funds: These debt funds invest only in instruments with maturities Continue reading
Dividend Investing
For those who are still considered greenhorns in the investment world, a dividend is the payment distributed by a company to all its shareholders. For the longest time, dividend investing has been a permanent fixture in wealth building and wealth management programs because of the kind of financial security it provides. An investor and expert financial planner earns in divided investments through dividend payments, which forms part of a company’s profit. The other profit portion not distributed to the investors will be pumped back into the capitalization used to fuel the operation of the company. Most wealth management and wealth building programs include dividend investing. To place investments strategically, a professional financial planner would be necessary. One who deals with dividend investing would need the expertise provided by a financial planner when playing with the rise and fall of share prices. With dividend investing as part of an individual’s wealth Continue reading
Defensive and Aggressive Securities
Defensive securities are kind of securities that exhibits less volatility than the market as a whole (i.e., its BETA is less than 1.0), providing lower, but more stable, returns. Investors often acquire defensive securities during periods of financial turmoil or uncertainty. Defensive securities tend to remain more stable in value than the overall market, especially when prices in general are falling. In times of market downturn, investors tend to seek defensive securities to provide a steady rate of return, or at least to lose less money than the market as a whole. Examples include stocks in utility companies and the health care industry. Defensive securities include stocks in companies whose products or services are always in demand and are not as price-sensitive to changes in the economy as other stocks. Aggressive in finance means relating to an investment or approach to investing that seeks above-average returns by taking above-average risks. Continue reading
Rights Offering (Issue)
Whenever an existing company wants to issue new equity shares, the existing shareholders will be potential buyers of these shares. Generally the Articles or Memorandum of Association of the Company gives the right to existing shareholders to participate in the new equity issues of the company. This right is known as ‘pre-emptive right’ and such offered shares are called ‘Right shares‘ or ‘Rights issue‘. A rights issue involves selling securities in the primary market by issuing rights to the existing shareholders. When a company issues additional share capital, it has to be offered in the first instance to the existing shareholders on a pro-rata basis. This is required in India under section 81 of the Companies Act, 1956. However, the shareholders may by a special resolution forfeit this right, partially or fully, to enable the company to issue additional capital to public. Under section 81 of the Companies Act 1956, Continue reading
Investment Diversification
Diversification is the strategy of combining distinct asset classes in an investment portfolio in order to reduce overall portfolio risk. In other words, investment diversification is the process of selecting the asset mix so as to reduce the uncertainty in the return of an investment portfolio. Diversification helps to reduce investment risks because different investments may rise and fall independent of each other. The combinations of these assets will nullify the impact of fluctuation, thereby, reducing risk. Most financial assets are not held in isolation, rather they are held as parts of portfolios. Banks, pension funds, insurance companies, mutual funds, and other financial institutions are required to hold diversified portfolios. Even individual investors – at least those whose security holdings constitute a significant part of their total wealth – generally hold stock portfolios, not the stock of a single firm. Why is it so? An important reason is the lowering Continue reading