Investors who want to lower risk and reach long-term financial goals should consider diversification. PSU bonds can be used to diversify your investment portfolio. We’ll discuss PSU bonds’ role in a diversified investment portfolio in this article.
What are PSU Bonds, and how do they work?
PSU bonds are debt instruments issued by Indian public sector undertakings (PSUs). These bonds have a fixed interest rate and a fixed term, which provide investors with reliable income for the entire investment period. PSU bonds are considered low-risk investments because government-owned businesses issue them. Therefore, defaults are less likely.
PSU Bonds and Diversified Investment Portfolios: What Role Do PSU Bonds Play?
Stability
PSU bonds are a stable investment option because they have a fixed rate and a fixed term. This stability helps balance riskier investments, such as equity or mutual funds, subject to market volatility.
Income generation
PSU bonds are a reliable source of income and a great option for investors who want to earn regular income. PSU bonds offer higher interest rates than bank fixed deposits (FDs), making them attractive investments for conservative investors looking for higher returns.
Risk Reduction
PSU bonds can be included in a portfolio to help reduce portfolio risk. PSU bonds are considered low-risk investments and are less likely than other options to default. Diversifying into multiple asset classes allows investors to spread their risk and decrease their exposure to one type of investment.
Tax Efficiency
PSU bonds can be tax-efficient investments because the interest earned is exempted from tax. Investors can get higher returns and not pay any tax on interest earned. PSU bonds are a better investment choice than bank FDs and fixed-income options, which are subject to tax.
Liquidity
PSU bonds can be redeemed before maturity in the event of financial emergencies. Investors looking for liquidity and the ability to access their investments in the event of unforeseeable circumstances will find PSU bonds a great option.
Conclusion
PSU bonds are a great addition to any portfolio. They offer stability, income, tax efficiency, tax efficiency and liquidity. Investors can spread their risk and reach long-term financial goals by including PSU bonds and other investments such as equities and mutual funds. Before investing in a PSU bond, evaluating your investment goals, risk tolerance, investment horizon, and objectives is important.
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