When you earn a salary, you often allocate portions of your earnings to various aspects of your life based on your needs and requirements. Once all your expenses are met, you are left with savings and investing amounts. As an investor, you are looking to invest your money into investments that will net you higher returns than you would make if you were to keep the money in a savings account for instance. You are also looking to create your diversified investment portfolio in order to spread out and therefore reduce your risk, based on your risk appetite. Thus, you might split your investment up into a number of fixed-income investments, as well as the equity market in India. In this article, let’s take a look at what is fixed income and what is equity market, as well as the difference between equity and fixed income investments, in order to assess their pros and cons so you can make better investment decisions.
What is equity market? Equity markets investments are where you invest your money into securities, called stocks, that are issued publicly by a company, and are traded on the stock markets. In the equity market in India, you make your investments based on your technical and fundamental analysis, assessing companies in order to gauge their future performance. Due to the relative volatility of the equity market in India as in all other places, as well as the higher quantities that investors can trade, it is possible to make comparatively abnormal returns.
Equity markets also consist of the trading of instruments such as stocks and mutual funds and a number of derivatives for more advanced traders such as options and futures.
A fixed-income investment is one you make into instruments that offer you a guaranteed routine return. This means they have lower risk as the returns are guaranteed and are usually backed by a credible guarantor such as the government of India, though the returns might be modest when compared to the equity market in India as a result.
What is fixed income? There are a number of fixed-income investments you can make, such as a public provident fund or PPF, debt securities and debt mutual funds, RBI taxable bonds and senior citizen saving schemes, among others.
While considering the difference between equity and fixed income markets, there are two factors that are inversely related to the two types of markets. These are the risks and returns. While equity markets have the potential of giving higher returns in the short run, the returns are not guaranteed and thus increases the risk. The fixed income markets, on the other hand, offer stable returns and thus lower risk, but the returns might also be modest.
Both fixed income markets and equity markets have their pros and cons. In this article, we have explored what is equity market and what is fixed income, and its various advantages and drawbacks. The goal, however, is to strike a balance between how you buy shares online and invest in fixed income markets in order to create a diverse portfolio that reduces your risk overall.
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