Tag: Debt

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1. Gold Investing
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Please let me in comments about what else you would like in upcoming videos.… Read the rest

How much would you allocate to bonds ?

This is my third and final post on debt series, to read previous ones click here and here

In this last post on Debt investments, I would cover allocation or in Simple words – How much of the portfolio should be in invested in debt instruments

Situation 1 – I know I need to double my portfolio in 6 years after paying taxes so that I can meet my personal needs

Here you know the target return on investment, i.e. 12% pre-tax on a compounded basis to double your portfolios in 6 years. Now first one has to understand on an average historical basis  how much debt and equity has returned. In India if look at last ten years data

Debt has given approximately 9% pre-tax return that equates to post tax return of 7.2% ( Assuming you pay 20% income tax)

Equity has given approximately 14% post tax return

Based on above one has to invest 70% in equity and 30% in debt to achieve their goal of attaining 12% pre-tax compounding return

But should you get obsessed with past performance? Understand past is not a guarantee of future performance, however one has to start somewhere and the best … Read the rest

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Download an excel for debt investors

This is part 2 of debt investment series, to read part 1 click here

Today we give you  Bond Analysis  excel to play with and find out what suits you, Quickly understand what these columns mean

Category – Defines what kind of instrument – NCD , Zero Coupon bond , Infra bonds etc

Exc = Exchange they are listed on

Issuer Name , NCD Name  = Self Explanatory

Credit rating = As provided by rating agencies when the instrument was issued

Coupon rate = rate of interest

Coupon frequency = How often interest is paid

Maturity date = When they will return you principal

Face value = Self Explanatory

LTP = Last trading price as on 24.03.2014

YTM = is the internal rate of return (IRR, overall interest rate) earned by an investor who buys the bond today at the market price, assuming that the bond will be held until maturity

Maturity amount = How much you will receive at the end of maturity, often equal to face value

Next coupon due = When are you getting next interest payment

Now, this excel can be easily used to find whatever kind of investment you are looking for, lets look at … Read the rest

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Investing in bonds & debt instruments

One of my most popular post has been on parking short term cash from last year. I have always believed that any successful investor should invest a portion of his portfolio in debt.

I will be writing on debt in three parts to do justice to this asset class. Today’s post is part -1

When investing in debt securities you are effectively lending money to businesses or governments or banks. Returns typically comprise interest and changes in the market value of the security.

Today we are going to cover

a) What is the risk of investing in debt instruments

b) What feasible options are available to retail investors to invest in debt instruments

There are few risks which we should be aware of

1. Loss of entire capital – Also know as credit risk or default risk. In unfortunate circumstances if the businesses or governments or banks are unable to return what you have lent them. To guard against this most of the debt instruments are rated by independent agencies,an investor should carefully understand what each ratings account for.

2. Loss on account of reduction in price of security – IFprice of the debt instrument goes  down, you may face … Read the rest