Model Fixed Income Portfolio

22 Nov 2013

by Arjun Parthasarathy

The universe for building a fixed income portfolio is small, unlike stocks. However within the small universe it is important to build and maintain a fixed income portfolio that reflects the future potential of the market as well as one’s own liquidity preference and risk appetite.

The universe of fixed income investments and their hold to maturity yields at of November 2013 are listed in Table 1.

Table 1. Universe of Fixed Income Investments

Source : INRBONDS.com

A safe portfolio would only have PPF, Post Office and Bank Fixed Deposits yielding returns of around 8.5% to 8.75%. There is no scope for capturing positive changes in interest rates or credit spreads in such portfolios.

A slightly more adventurous portfolio would include AA rated NCDs in the portfolio that would take up portfolio returns by 9.5% assuming 20% weight is given to NCDs.

Investors in top tax brackets would add tax free bonds in the portfolio that would boost tax adjusted yields but not nominal portfolio yields.

An analysis of yields given in Table 1 suggests that market to market securities are giving returns ranging from 9% to 10%. However all these securities trade in the market and if interest rates move higher there is a risk of mark to market loss in the portfolio. However given current market conditions and future outlook for the market, a portfolio mix of mark to market securities would be the portfolio that has the potential to outperform the fixed rate portfolio.

We will be sending to our subscribers a model fixed income portfolio that will be maintained by us. We will track the portfolio performance and will rebalance the portfolio as and when necessary. We will give you two portfolios, one portfolio with money market securities, government bonds and corporate bonds and the second portfolio will have liquid funds, short term and long term income and gilt schemes of mutual funds.

Subscribers can replicate the portfolio and follow us as we track and maintain the portfolio.

The model fixed income portfolio will be released on the 25^th of November 2013.

About the Author

Arjun Parthasarathy is dedicating his experience of over twenty years in financial markets to guide investors to the path of informed decision making on their investments. The more informed the investor, the more money the investor will make is the guiding principle of Arjun. The fact that he has worked across markets including equities, interest rates, credits and currencies and across market platforms of fund management, proprietary trading and research, gives Arjun the extra edge that is required to guide investors to make the right investments in the globalized nature of markets.