The document discusses various topics related to financial markets and interest rates, including different types of financial markets and institutions, how capital is transferred between savers and borrowers, factors that affect interest rates such as production opportunities and inflation, and risks associated with investing overseas such as country risk and exchange rate risk.
This document provides information on debt markets and debt funds, including:
1. It outlines the risks associated with debt markets like interest rate risk and credit risk. SEBI regulations have mitigated some risks.
2. Interest rate fluctuations can impact returns in debt funds depending on their duration. Shorter duration funds have less interest rate risk.
3. The document recommends matching a debt fund's duration to an investor's horizon and provides examples of suitable funds for different time periods.
4. Scenario analyses show how different debt funds could perform under various interest rate changes to help educate investors.
Mutual Funds does not always mean Up and Down, Risky and gives a feeling of "No, not for me".
Debt Mutual Funds can be a great Portfolio diversifier and
Fixed Income - Arbitrage in a financial crisis - Swap Spread in 2008Jean Lemercier
Group 15 submitted their coursework for the MSc in Finance module "Fixed Income". Their submission analyzed a proposed fixed income arbitrage trade by Albert Mills at Kentish Town Capital to take advantage of abnormally low swap spreads in November 2008 following the financial crisis. The trade involved going long 30-year interest rate swaps and shorting 30-year Treasuries to match duration. Key risks included counterparty risk, changes in Treasury yields requiring more collateral, and the ability to renew short-term repo agreements over 30 years. The group analyzed why swap spreads had fallen so low and could potentially become negative.
Investing through systematic investment plans (SIPs) in mutual funds reduces the average cost of investment compared to lump sum investing. By investing a fixed amount every month through SIPs, more units are purchased when the market is down and fewer units when the market is up, averaging out the overall cost. The example shows an SIP of Rs. 5,000 per month for 12 years in an equity fund, with a total investment of Rs. 7.85 lakhs growing to Rs. 44.66 lakhs, achieving a CAGR return of 24.38%. SIPs help investors benefit from rupee cost averaging and stay invested in volatile markets.
Investment planning involves balancing risk and return. Lower risk investments like savings accounts and fixed deposits have lower potential returns, while higher risk investments like equity and real estate may offer higher returns but more volatility. Different investment options suit different goals based on risk tolerance and time horizon. Cash management involves saving programs, budgeting, and using appropriate products like FDs, RDs, and money market instruments. Bonds, mutual funds, PPF, and tax-free bonds are good options for debt investments suitable for medium-term goals. Equity is best for long-term goals due to higher potential returns over long periods.
In a rising interest rate environment, short duration plans like liquid funds, ultra short term funds, and fixed maturity plans (FMPs) are the best choice. These products have maturity periods of less than one year, so they are less impacted by rising interest rates than long duration debt instruments. They provide better returns than savings accounts while still allowing flexibility to withdraw funds without penalty. When interest rates are increasing, it is preferable to invest in short term plans that minimize interest rate risk and allow reinvesting funds at higher rates.
The document provides an explanation for why long-term investing in assets is recommended over cash or inflation. It discusses diversifying investments across asset classes to reduce risk and increase returns. Passive funds are preferred over active funds due to higher costs and lack of evidence that active funds consistently outperform indexes. Risk is reduced by combining low-correlated assets from different categories in portfolios tailored to individual risk tolerances.
The document discusses various topics related to financial markets and interest rates, including different types of financial markets and institutions, how capital is transferred between savers and borrowers, factors that affect interest rates such as production opportunities and inflation, and risks associated with investing overseas such as country risk and exchange rate risk.
This document provides information on debt markets and debt funds, including:
1. It outlines the risks associated with debt markets like interest rate risk and credit risk. SEBI regulations have mitigated some risks.
2. Interest rate fluctuations can impact returns in debt funds depending on their duration. Shorter duration funds have less interest rate risk.
3. The document recommends matching a debt fund's duration to an investor's horizon and provides examples of suitable funds for different time periods.
4. Scenario analyses show how different debt funds could perform under various interest rate changes to help educate investors.
Mutual Funds does not always mean Up and Down, Risky and gives a feeling of "No, not for me".
Debt Mutual Funds can be a great Portfolio diversifier and
Fixed Income - Arbitrage in a financial crisis - Swap Spread in 2008Jean Lemercier
Group 15 submitted their coursework for the MSc in Finance module "Fixed Income". Their submission analyzed a proposed fixed income arbitrage trade by Albert Mills at Kentish Town Capital to take advantage of abnormally low swap spreads in November 2008 following the financial crisis. The trade involved going long 30-year interest rate swaps and shorting 30-year Treasuries to match duration. Key risks included counterparty risk, changes in Treasury yields requiring more collateral, and the ability to renew short-term repo agreements over 30 years. The group analyzed why swap spreads had fallen so low and could potentially become negative.
Investing through systematic investment plans (SIPs) in mutual funds reduces the average cost of investment compared to lump sum investing. By investing a fixed amount every month through SIPs, more units are purchased when the market is down and fewer units when the market is up, averaging out the overall cost. The example shows an SIP of Rs. 5,000 per month for 12 years in an equity fund, with a total investment of Rs. 7.85 lakhs growing to Rs. 44.66 lakhs, achieving a CAGR return of 24.38%. SIPs help investors benefit from rupee cost averaging and stay invested in volatile markets.
Investment planning involves balancing risk and return. Lower risk investments like savings accounts and fixed deposits have lower potential returns, while higher risk investments like equity and real estate may offer higher returns but more volatility. Different investment options suit different goals based on risk tolerance and time horizon. Cash management involves saving programs, budgeting, and using appropriate products like FDs, RDs, and money market instruments. Bonds, mutual funds, PPF, and tax-free bonds are good options for debt investments suitable for medium-term goals. Equity is best for long-term goals due to higher potential returns over long periods.
In a rising interest rate environment, short duration plans like liquid funds, ultra short term funds, and fixed maturity plans (FMPs) are the best choice. These products have maturity periods of less than one year, so they are less impacted by rising interest rates than long duration debt instruments. They provide better returns than savings accounts while still allowing flexibility to withdraw funds without penalty. When interest rates are increasing, it is preferable to invest in short term plans that minimize interest rate risk and allow reinvesting funds at higher rates.
The document provides an explanation for why long-term investing in assets is recommended over cash or inflation. It discusses diversifying investments across asset classes to reduce risk and increase returns. Passive funds are preferred over active funds due to higher costs and lack of evidence that active funds consistently outperform indexes. Risk is reduced by combining low-correlated assets from different categories in portfolios tailored to individual risk tolerances.
The document discusses Belmont Investments, a hedge fund manager based in the US, Dublin, and Singapore. It notes that hedge funds can provide diversification benefits when added to a portfolio of stocks and bonds, as they have low correlation to traditional assets and can help lower overall portfolio risk and volatility. The document also discusses managed futures funds, which invest in futures contracts across a variety of markets, and how they can exhibit trend-following behavior and further improve risk-adjusted returns when added to stock and bond portfolios.
The document discusses how interest rates work. It explains that interest rates are the price of borrowing money from lenders and are determined by the level of risk in a loan. It also discusses how interest rates are affected by factors like inflation, the length of a loan, and economic growth. When an interest rate hike is announced, it causes stock markets to drop as it will reduce the amount of money available in the economy.
This document provides information on how to choose a debt mutual fund. It defines key debt fund terms like average maturity, modified duration, and yield to maturity. It describes the main risks of debt funds as credit risk, interest rate risk, and liquidity risk. It recommends matching a fund's credit profile to one's risk tolerance and considering return scenarios when interest rates are expected to rise or fall. Various types of debt funds are outlined with their typical investments, risk levels, suitable holding periods, and target investors. Overall factors to consider include a fund's expenses, ratings, and past performance.
Debt refers to borrowing money that is owed to another party. Key features of debt instruments include coupon rate, principal amount, and tenure. The price of a bond and its yield are inversely related. Factors like interest rate changes, credit risk of the issuer, and reinvestment risk upon maturity affect debt investments. Government securities, corporate bonds, money market instruments form the key components of the Indian debt market.
The document is a presentation on the Indian financial system covering various topics such as interest rates, types of interest rates set by the Reserve Bank of India, factors affecting market interest rates, government securities, and public deposits. It provides definitions and levels of interest rates according to different theories. It also outlines the structure and policy rates in India including the repo rate, reverse repo rate, cash reserve ratio, and statutory liquidity ratio set by RBI. Finally, it discusses reasons for changes in interest rates and characteristics of business cycles.
Foreign exchange markets involve the daily purchase and sale of trillions of dollars worth of national currencies. The foreign exchange market dwarfs other financial markets in size, with $4 trillion traded daily. Under flexible exchange rates, exchange rates are determined by market forces of supply and demand, while fixed rates require central bank intervention to maintain a set price. The uncovered and covered interest parity conditions suggest that expected returns should equalize across countries, but empirical tests often reject these conditions, posing puzzles for financial theory.
This document provides an introduction to a new investment strategy that aims to outperform the market and mutual funds with lower risk. It discusses how past market downturns have wiped out gains and caused investor losses. The strategy outlined in the book uses relative strength analysis of stocks and funds to select outperforming investments with the goal of achieving average annual returns of 8.8% for Level 1 and 11.1% for Level 2, beating a typical European equity fund return of 4.5% annually over the past 10 years. The authors have over a decade of experience in wealth management and developed this strategy to help investors improve performance and reduce stress from market volatility.
This document summarizes the benefits of liquid funds compared to traditional savings accounts. Liquid funds are open-ended debt mutual funds that invest in short-term money market instruments and provide higher returns than savings accounts while still maintaining liquidity and safety of capital. They can be considered an alternative to parking surplus cash in savings accounts. Liquid funds have historically offered returns as high as 7.5-8% annually compared to 4-6% from savings accounts and are ideal for surplus cash needs of 1 week to 3 years. Key advantages include higher post-tax returns, avoidance of premature withdrawal penalties of fixed deposits, and tax efficiency.
The document discusses various determinants of interest rates, including the real risk-free rate which is the risk-free rate plus inflation premium, the nominal risk-free rate which includes a premium against the risk of default on payments, the default risk premium which covers the risk of a borrower failing to make interest or principal payments, the liquidity risk premium which covers the difficulty of selling less marketable securities, and the maturity risk premium which covers the risk of interest rates changing for bonds with longer maturities.
Interest rates & its effects on Investments R VISHWANATHAN
The document discusses regular investment habits and patterns when interest rates increase or decrease. It notes that decreasing interest rates attract loan takers and promote the economy, while increasing rates attract depositors and help control inflation. Major investments discussed include bank term deposits, debt funds, and gold ETFs. Factors that attract investors to banks include reputation, interest rates on deposits, and cross-selling. Bond prices and interest rates are inversely related, so investors buy bonds when rates fall and sell when they rise. The document also examines investors' preferences based on investment tenure and provides percentages of investments in different asset classes from 2011-2013. Smart investors are advised to follow daily news updates on interest rate changes.
This document provides an overview of asset swaps and Z-spreads. It begins with an introduction to interest rate swaps, including how they work and their cash flows. It then discusses zero-coupon swaps and how swap curves can be used to derive forward rates and discount factors. The document explains how asset swaps combine a bond investment with an interest rate swap to exchange fixed cash flows for floating rates. Finally, it introduces the concept of Z-spreads which allow fair comparisons of bond yields to swap rates.
This document discusses strategies for limiting stock market risk, such as the Rule of 100. The Rule of 100 states that the percentage invested in stocks should not exceed 100 minus the investor's age. So a 40 year old would invest 60% in stocks. It also discusses balancing portfolios between stocks and bonds. While bonds provide stability, both stocks and bonds carry risk as their prices can fluctuate. Alternative products like market-linked CDs and indexed annuities are presented as ways to participate in stock market gains without risk of losses.
This document discusses how interest rates work. It explains that interest rates exist because lenders charge interest in order to be compensated for the risk of borrowers defaulting on loans. The document outlines how interest rates are calculated based on factors like risk, term of the loan, inflation, and type of credit. It also discusses how central banks can influence interest rates to help manage economic growth and inflation. Overall, the document provides a conceptual overview of how and why interest rates exist, how they are determined, and their role in the economy.
This is to compare the Returns of Fixed Deposits and Debt Oriented Hybrid Funds [Capital Protection Oriented Fund / Scheme (CPOF), Mutual Fund Monthly Income Plan / Scheme (MIP), Equity Savings Funds], to demonstrate how the latter is better.
Interest rates play an important role in determining a country's liquidity position. Higher interest rates aim to decrease liquidity in the economy by increasing savings. Lower interest rates increase liquidity by making capital more accessible and encouraging borrowing. Theories of interest rate determination include the classical theory that real factors like savings and investment determine rates, and the Keynesian theory that interest rates are a monetary phenomenon influenced by the money supply. Different interest rates exist based on the maturity of financial instruments.
The document discusses various technical, fundamental, and seasonal factors for measuring change in the stock market to identify investment opportunities. It outlines metrics for analyzing short-term momentum, long-term trends, earnings momentum, insider buying, short interest, price-earnings ratios, and seasonality to help portfolio managers save time, beat their peer group, and grow assets under management while improving investors' returns.
Evolution of Interest Rate Curves since the Financial CrisisFrançois Choquet
This is a presentation given to Bloomberg end users working in front, middle and back offices in Dec. 2010. It highlights the financial crisis and the subsequent shift of financial instruments used to construct a valid interest rate curve. It outlines the methodology to build a reliable curve with Deposits, FRAs, Futures and Swaps and defines the validation principles.
This document discusses market efficiency and the flow of funds between different financial assets. It explains how the prices of bonds are determined based on factors like maturity, liquidity, credit risk, and taxes, with the overall rate being adjusted for risks. It also discusses how stock prices are set through transactions and how stocks provide income from dividends and potential capital gains or losses from resale.
What will digitalisation do for Banking. Which mistakes from the past can still be fixed and how can banks prepare for the future. This presentation gives a high level overview on why banks are struggling with digitalisation and what the challenges are.
The document discusses Belmont Investments, a hedge fund manager based in the US, Dublin, and Singapore. It notes that hedge funds can provide diversification benefits when added to a portfolio of stocks and bonds, as they have low correlation to traditional assets and can help lower overall portfolio risk and volatility. The document also discusses managed futures funds, which invest in futures contracts across a variety of markets, and how they can exhibit trend-following behavior and further improve risk-adjusted returns when added to stock and bond portfolios.
The document discusses how interest rates work. It explains that interest rates are the price of borrowing money from lenders and are determined by the level of risk in a loan. It also discusses how interest rates are affected by factors like inflation, the length of a loan, and economic growth. When an interest rate hike is announced, it causes stock markets to drop as it will reduce the amount of money available in the economy.
This document provides information on how to choose a debt mutual fund. It defines key debt fund terms like average maturity, modified duration, and yield to maturity. It describes the main risks of debt funds as credit risk, interest rate risk, and liquidity risk. It recommends matching a fund's credit profile to one's risk tolerance and considering return scenarios when interest rates are expected to rise or fall. Various types of debt funds are outlined with their typical investments, risk levels, suitable holding periods, and target investors. Overall factors to consider include a fund's expenses, ratings, and past performance.
Debt refers to borrowing money that is owed to another party. Key features of debt instruments include coupon rate, principal amount, and tenure. The price of a bond and its yield are inversely related. Factors like interest rate changes, credit risk of the issuer, and reinvestment risk upon maturity affect debt investments. Government securities, corporate bonds, money market instruments form the key components of the Indian debt market.
The document is a presentation on the Indian financial system covering various topics such as interest rates, types of interest rates set by the Reserve Bank of India, factors affecting market interest rates, government securities, and public deposits. It provides definitions and levels of interest rates according to different theories. It also outlines the structure and policy rates in India including the repo rate, reverse repo rate, cash reserve ratio, and statutory liquidity ratio set by RBI. Finally, it discusses reasons for changes in interest rates and characteristics of business cycles.
Foreign exchange markets involve the daily purchase and sale of trillions of dollars worth of national currencies. The foreign exchange market dwarfs other financial markets in size, with $4 trillion traded daily. Under flexible exchange rates, exchange rates are determined by market forces of supply and demand, while fixed rates require central bank intervention to maintain a set price. The uncovered and covered interest parity conditions suggest that expected returns should equalize across countries, but empirical tests often reject these conditions, posing puzzles for financial theory.
This document provides an introduction to a new investment strategy that aims to outperform the market and mutual funds with lower risk. It discusses how past market downturns have wiped out gains and caused investor losses. The strategy outlined in the book uses relative strength analysis of stocks and funds to select outperforming investments with the goal of achieving average annual returns of 8.8% for Level 1 and 11.1% for Level 2, beating a typical European equity fund return of 4.5% annually over the past 10 years. The authors have over a decade of experience in wealth management and developed this strategy to help investors improve performance and reduce stress from market volatility.
This document summarizes the benefits of liquid funds compared to traditional savings accounts. Liquid funds are open-ended debt mutual funds that invest in short-term money market instruments and provide higher returns than savings accounts while still maintaining liquidity and safety of capital. They can be considered an alternative to parking surplus cash in savings accounts. Liquid funds have historically offered returns as high as 7.5-8% annually compared to 4-6% from savings accounts and are ideal for surplus cash needs of 1 week to 3 years. Key advantages include higher post-tax returns, avoidance of premature withdrawal penalties of fixed deposits, and tax efficiency.
The document discusses various determinants of interest rates, including the real risk-free rate which is the risk-free rate plus inflation premium, the nominal risk-free rate which includes a premium against the risk of default on payments, the default risk premium which covers the risk of a borrower failing to make interest or principal payments, the liquidity risk premium which covers the difficulty of selling less marketable securities, and the maturity risk premium which covers the risk of interest rates changing for bonds with longer maturities.
Interest rates & its effects on Investments R VISHWANATHAN
The document discusses regular investment habits and patterns when interest rates increase or decrease. It notes that decreasing interest rates attract loan takers and promote the economy, while increasing rates attract depositors and help control inflation. Major investments discussed include bank term deposits, debt funds, and gold ETFs. Factors that attract investors to banks include reputation, interest rates on deposits, and cross-selling. Bond prices and interest rates are inversely related, so investors buy bonds when rates fall and sell when they rise. The document also examines investors' preferences based on investment tenure and provides percentages of investments in different asset classes from 2011-2013. Smart investors are advised to follow daily news updates on interest rate changes.
This document provides an overview of asset swaps and Z-spreads. It begins with an introduction to interest rate swaps, including how they work and their cash flows. It then discusses zero-coupon swaps and how swap curves can be used to derive forward rates and discount factors. The document explains how asset swaps combine a bond investment with an interest rate swap to exchange fixed cash flows for floating rates. Finally, it introduces the concept of Z-spreads which allow fair comparisons of bond yields to swap rates.
This document discusses strategies for limiting stock market risk, such as the Rule of 100. The Rule of 100 states that the percentage invested in stocks should not exceed 100 minus the investor's age. So a 40 year old would invest 60% in stocks. It also discusses balancing portfolios between stocks and bonds. While bonds provide stability, both stocks and bonds carry risk as their prices can fluctuate. Alternative products like market-linked CDs and indexed annuities are presented as ways to participate in stock market gains without risk of losses.
This document discusses how interest rates work. It explains that interest rates exist because lenders charge interest in order to be compensated for the risk of borrowers defaulting on loans. The document outlines how interest rates are calculated based on factors like risk, term of the loan, inflation, and type of credit. It also discusses how central banks can influence interest rates to help manage economic growth and inflation. Overall, the document provides a conceptual overview of how and why interest rates exist, how they are determined, and their role in the economy.
This is to compare the Returns of Fixed Deposits and Debt Oriented Hybrid Funds [Capital Protection Oriented Fund / Scheme (CPOF), Mutual Fund Monthly Income Plan / Scheme (MIP), Equity Savings Funds], to demonstrate how the latter is better.
Interest rates play an important role in determining a country's liquidity position. Higher interest rates aim to decrease liquidity in the economy by increasing savings. Lower interest rates increase liquidity by making capital more accessible and encouraging borrowing. Theories of interest rate determination include the classical theory that real factors like savings and investment determine rates, and the Keynesian theory that interest rates are a monetary phenomenon influenced by the money supply. Different interest rates exist based on the maturity of financial instruments.
The document discusses various technical, fundamental, and seasonal factors for measuring change in the stock market to identify investment opportunities. It outlines metrics for analyzing short-term momentum, long-term trends, earnings momentum, insider buying, short interest, price-earnings ratios, and seasonality to help portfolio managers save time, beat their peer group, and grow assets under management while improving investors' returns.
Evolution of Interest Rate Curves since the Financial CrisisFrançois Choquet
This is a presentation given to Bloomberg end users working in front, middle and back offices in Dec. 2010. It highlights the financial crisis and the subsequent shift of financial instruments used to construct a valid interest rate curve. It outlines the methodology to build a reliable curve with Deposits, FRAs, Futures and Swaps and defines the validation principles.
This document discusses market efficiency and the flow of funds between different financial assets. It explains how the prices of bonds are determined based on factors like maturity, liquidity, credit risk, and taxes, with the overall rate being adjusted for risks. It also discusses how stock prices are set through transactions and how stocks provide income from dividends and potential capital gains or losses from resale.
What will digitalisation do for Banking. Which mistakes from the past can still be fixed and how can banks prepare for the future. This presentation gives a high level overview on why banks are struggling with digitalisation and what the challenges are.
This document provides information about capital markets in Pakistan. It defines capital markets and describes the primary and secondary markets. It then discusses the role of stock exchanges in Pakistan, including the Lahore, Karachi, and Islamabad stock exchanges. It also outlines the mission, vision, objectives and functions of the Security and Exchange Commission of Pakistan (SECP) which regulates capital markets. Finally, it briefly discusses stock indices and foreign portfolio investment.
This document discusses various capital market instruments. It defines capital markets as dealing with medium to long term funds and describes primary roles as raising funds for governments, banks and corporations through stocks and bonds. It then discusses types of capital market instruments including equity (common/preferred stocks), debt (bonds, mortgages), hybrids (convertible bonds) and insurance instruments. The document provides details on features and types of these various capital market instruments.
Project finance involves investing in large industrial or infrastructure projects through a legally independent project company financed primarily with debt. It creates value through its organizational, contractual, and governance structures. The organizational structure addresses agency costs and risk contamination by separating the project from sponsors' balance sheets. Contractual structures allocate risk to parties best able to manage it, lowering overall risk costs. Governance relies on debt covenants to monitor management.
Digital payment modes financial literacy initiative by syndicate bankVikash Yadav
The document summarizes a workshop held by Syndicate Bank on digital payment modes such as debit/credit cards, POS, internet banking, IMPS, UPI, AePS, and USSD. The workshop covered whether cash is still needed, other available payment options, benefits of digital payments, how to use options like IMPS and e-wallets, and precautions to take with digital payments. It concluded that electronic banking and digital payments are convenient, secure, environment friendly and help build a less-cash society.
Commercial banks play a key role in the economy by accepting deposits from customers and providing loans and other financial services. They offer a variety of deposit products like savings accounts, fixed deposits, and current accounts. For credit, banks provide overdrafts, cash credits, loans, and bill discounting. Banks also offer other services like remittances, debit/credit cards, letters of credit, and safety deposit lockers. Commercial banking has evolved in India from the establishment of presidency banks in early 1800s to nationalization in 1969 and ongoing liberalization and globalization.
A small and appropriate ppt on EXTERNAL or International trade.You will find everything serially. Hope this will help u guys..........IF something is missing plz comment..,.. and let me know... THANK U
The document discusses three common myths about investing: 1) that bonds are always safe and investors cannot lose money, 2) that interest rates cannot stay low for long so investors should wait in cash, and 3) that volatility in equities is always bad. It argues that bonds face price risk, interest rates could remain low for many years, and short-term volatility in stocks presents opportunities for long-term investors to buy at lower prices. The commentary was used to explain investment decisions made in the DIAS Conservative Income portfolio in light of recent market declines.
The volatility in today’s financial markets is making it impossible to know where to invest and grow your money without the fear of losing your lifetime savings. Historic low interest rates are making is difficult to provide the income needed by investing in safer investments such as CDs and annuities. Investing a portion of your overall portfolio in fixed income investments should be considered as a solution to reducing volatility and providing needed income.
The document discusses market volatility and strategies for dealing with it. It defines volatility, looks at historical volatility levels, and discusses how volatility affects investors. It then outlines the wealth management group's strategies, which include repositioning portfolios to focus on quality income assets, employing strategies to dampen volatility, and ensuring portfolios align with clients' goals and risk tolerance.
This document summarizes lessons from the Great Recession regarding bonds and portfolio rebalancing:
1) Don't take unnecessary risks with bonds. Many investors took on more credit risk without understanding bonds fully and suffered losses. It's best to stick to high-quality, short-term bonds to reduce overall portfolio volatility.
2) Rebalance portfolios regularly. Markets move assets classes over time, shifting the original risk allocation. Rebalancing ensures the portfolio stays aligned with the investor's goals and risk tolerance.
3) Not rebalancing allows portfolios to take on more risk over time. One example showed a portfolio drifting from 50% stocks/50% bonds to 67%/33% over 20 years due
This document discusses low-cost investing using exchange traded funds (ETFs) for retirement. It argues that mutual funds are a flawed model for most investors due to their high fees which eat into returns over time. ETFs provide a better, cheaper alternative for gaining exposure to stock and bond markets while minimizing taxes and costs. The document presents strategies using low-cost ETFs from Vanguard, iShares and other providers to build globally diversified portfolios and outlines the services provided by Confluence Investment Advisors to manage ETF portfolios.
This document discusses achieving higher returns from lower risk stocks. It summarizes research showing that low volatility stocks have historically outperformed high volatility stocks in terms of risk-adjusted returns. The document advocates using a risk rating system to classify stocks based on volatility into categories like conservative, balanced, adventurous, etc. It shows that more conservative stocks have had higher long-term returns and better performance during market downturns compared to more speculative stocks. The document suggests strategies for investors like focusing on "conservative super stocks" that have attributes like quality, value and momentum to potentially further improve risk-adjusted returns from low volatility stocks.
The document discusses interest rates and inflation trends over recent decades and their impact on mortgage rates, bond yields, and retirement savings. It notes that while rates had declined significantly since the 1970s and 1980s, inflation has remained low in recent years, averaging just 1.7% over the past three years. This has led some to question whether the current low rate environment represents a "new normal." The document examines various economic factors that could influence the direction of future rate changes, such as wage growth, unemployment levels, and actions by the Federal Reserve.
- Inflation from 1973-2008 increased 500% while the S&P 500 and bonds ran out of money by 1990 and 1994 respectively when using a 5% withdrawal rate.
- Diversifying across different asset classes with varying risk profiles can increase returns while lowering risks compared to being fully invested in stocks or bonds alone.
- Rebalancing a portfolio periodically helps investors buy low and sell high, lowering risks and increasing returns over the long run.
Tamohara investment newsletter September 2015tamohara
The document is a monthly newsletter from Tamohara Investment Managers discussing market volatility and corrections. It notes that corrections of 5-20% are normal even during bull markets. While markets correcting can worry investors in the short term, focusing on long term fundamentals is better than reacting to short term movements. Current market conditions do not show signs of euphoria seen late in past bull markets. Despite volatility, Indian markets are positioned for growth supported by stable macros, improving governance, and transitioning to consumption-driven growth in China. Investors are advised to think long term and do less reacting to daily news and movements.
This document discusses factors to consider for retirement planning such as inflation, longevity, and rising healthcare costs which require a higher retirement fund. It emphasizes the importance of making your money work to outpace inflation through investment. Specific investment options and their returns over different periods are presented to illustrate how equities can achieve returns above inflation levels if given sufficient time to grow. The key messages are to diversify investments, avoid panic reactions to market volatility, and continue investing for the long term to meet retirement goals.
Mutual funds allow investors to pool their money together and invest in a variety of securities like stocks, bonds, and money market instruments. They offer the benefits of diversification and professional management. The document discusses the different types of mutual funds such as equity funds, fixed income funds, and money market funds. It also covers mutual fund fees, risks, performance measurement metrics, and past performance of some Indian mutual funds. The top mutual fund houses in India have been using the market decline in August to buy stocks at attractive prices.
Multi Asset Endowment Investment StrategyTaposh Roy
The Farhampton Endowment manages a $200MM fund for the University of New York. Their mission is to generate financial resources for research and new programs through a diversified portfolio. They provide a 4.25% annual gift to the university. Their portfolio manager team oversees different asset classes including private equity, equities, hedge funds, bonds, cash, commodities, and real estate.
Given current economic and market conditions, they recommend a portfolio with 20% in stocks, 28% in hedge funds, 15% in cash, 10% in bonds, 10% in private equity, 10% in real estate, and 7% in commodities. This portfolio aims to weather uncertain markets with stable, profitable returns
Interest Rates overview and knowledge insightjustmeyash17
1) Interest rates are determined by factors like expected inflation, default risk, liquidity, and maturity. The relationship between short and long-term interest rates is known as the term structure.
2) The term structure can be upward-sloping, flat, or downward-sloping (inverted). Upward slopes typically occur when short-term rates are low.
3) Three main theories explain the term structure: expectations theory, market segmentation, and liquidity premium theory. The liquidity premium theory best explains the empirical regularities by incorporating both expectations of future rates and investors' preference for liquidity.
Compared to equities, bonds at first glance can appear like a throwback to your grandparent's days, but this month we take a look at how bonds may help mitigate risk, and the role they play in a well-diversified portfolio.
2012 Midyear Economic And Market Outlooksumguyatvt
Uncertainty overshadows an improving economy. The economy continues to recover from the worse downturn since the Great Depression, which caused the S&P 500 to lose more than 1/2 of its value between October 2007 and March 2009. Although things are better now, this recovery has taken longer than many of us would have liked. As a result, I think we\’re still at least a little nervous about the future and uncertain about how to prepare our portfolios to face what may be down the road. In this presentation, I discuss what we at Wells Fargo Advisors see ahead for the economy, the domestic and international equity markets, fixed income investments, and commodities.
Investing in a Rising Rate Environment - Dec. 2011RobertWBaird
- Rising interest rates can negatively impact bond prices in the short-term but a focus on total return, which includes interest income, provides a more accurate picture of bond performance over time.
- An analysis of periods from 1994-2006 when the Federal Reserve raised rates found that while bond prices fell in the majority of months, interest income was positive every month and total returns were positive in 64% of months.
- Diversifying across different types of bonds can help mitigate the effects of rising rates as different bond segments perform variably depending on economic conditions. Professional bond managers employ strategies to offset negative impacts and maximize total returns.
This document provides summaries of market conditions and investment outlooks from experts at Telemus Capital Management. It includes the following:
- A summary of the global economic outlook and key factors such as inflation, interest rates, currencies, and natural resources from Jim Robinson of Robinson Capital Management.
- A summary of the U.S. equity market outlook for 2014 from Timothy Evnin of Evercore Wealth Management, noting that earnings growth will drive market gains rather than further multiple expansion.
- A question and response about the municipal bond market's performance in Q4 2013 and how rising rates and isolated credit situations weighed on prices, despite improving fundamentals.
Fixed interest rate markets, global bond markets, and the competing nature of risk versus return provide an update about how governments are tracking when compared to corporates.
Financial planning is a long-term process of managing one's finances to achieve goals. It provides a roadmap to financial well-being and sustainable wealth creation. Many misconceptions exist, such as that it only involves budgeting or is only for the wealthy. Financial planning is needed due to risks like living too long in retirement, changing lifestyles, inflation, and lack of social security. It involves understanding assets, liabilities, priorities, timelines, and appropriate investment vehicles. Starting financial planning early allows greater benefits of compounding returns. Using systematic investment plans smooths out market volatility for better long-term returns. Financial planners can help develop and implement customized plans.
Similar to FIRC Fixed Inocme, Rates, and Credit (20)
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This document provides an overview of wound healing, its functions, stages, mechanisms, factors affecting it, and complications.
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A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
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Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
2. Think FIRC & Think Trading
“Fixed Income” is too narrow of a definition for what we
can invest in for “income” purposes.
Income portfolios need to be looked at on a total return
basis as much as any equity portfolio.
3. Benchmarks & Managers Matter
How much were stocks up in 2013?
• 22% if you invested in DJIA, 25% if you invested in SPY, and 35%
if you invested in QQQ. Big differences based on the index you
track.
• If you move outside the US, the question of how much were
stocks up varies even more.
• What about the last 6 months? Spain’s 39% gain dwarfs the S&P
500’s 10%.
4. Where are Rates Headed?
What rate?
• 10-Year Treasury? Long bond? 3 Month LIBOR? High-yield bond
yields? High-yield bond spreads? Spanish bonds? European
corporate bonds?
What time frame?
• Over the next few days? Weeks? Months? Years? Timing is even
more important in the income world where coupon and interest
payments are an important factor in total return.
5. Where are Rates Headed?
Intermediate Yields
• Stable to slightly lower as the growth story fails to develop
sufficient strength and a steep yield curve slowly drives short
positions out of the market
Credit Spreads
• Tighter as there is sufficient growth to support the market, and
the “chase for yield” encourages structured products in addition
to CLO’s creating greater demand for credit
6. Managing Bond Market Risk
Complex but Simple
• Bonds have their own terminology that is confusing at first, but
you will soon realize it is more about job security for fixed income
professionals than anything that is truly difficult to understand
• Think in basic “building blocks” of risk and you can’t go wrong.
• Fixed Income portfolios can be customized to express risk views
in ways that equity portfolios can’t.
7. Bond Market Risks
Complex but Simple
• Bonds have their own terminology, which while confusing at
first, you will realize it is more about job security for fixed income
professionals than anything that is truly difficult to understand.
• Think in basic “building blocks” of risk and you can’t go wrong
• Fixed Income portfolios can be customized to express risk views
in ways that equity portfolios can’t.
8. Bond Market Risks – Rate And Duration
Rate Risk
• Typically Treasury or sovereign debt risk. The “risk-free” rate.
• LIBOR, a benchmark for short-term rate risk, typically tracks Fed
Funds and Bank Credit Spreads.
• TIPS are traded on a “real yield” where investors can lock in a
real rate of return above CPI.
• Rates are expressed in yield, or bps (basis points), where 1 bp
(basis point) is simply 0.01% in yield terms.
9. Bond Market Risks – Rate And Duration
Duration Risk
• Bonds with longer maturities generally have more interest rate
risk. For a similar change in yield, a bond with a longer maturity
will typically have a larger price move.
• Callable bonds, typical of high-yield bonds and preferred
bonds, cap their upside as they can be called, so they face
“extension” risk where the effective maturity increases as prices
decline
10. Bond Market Risks – Rate And Duration
SHY and FLOT barely move, while TLT has much larger swings than IEF as
the underlying portfolio has a much longer average duration
11. Bond Market Risks – Rate and Duration
This simple table illustrates a lot of what you need to
know about bond “math” or bond pricing
5 Year Treasury
Yield
Price Change
1.20% 101.45%
2.41%
1.45% 100.24%
1.20%
1.70% 99.05%
1.95% 97.87% -1.18%
2.20% 96.70% -2.34%
2.70% 94.42% -4.62%
3.70% 90.80% -8.25%
10 Year Treasury
Yield
Price
Change
2.40% 103.10%
4.39%
2.65% 100.87%
2.17%
2.90% 98.71%
3.15% 96.59% -2.11%
3.40% 94.53% -4.18%
3.90% 90.55% -8.15%
4.90% 83.16% -15.54%
12. Bond Market Risks – Curve Risk
Curve Risk
• Bond yields have changed with the curve “steepening” which
means that longer rates have increased faster than short term
rates.
• U.S. Treasury Yield Curves remain very steep.
• Forward rates have priced in a lot of weakness as the “fair” rate
for the 10 year bond yield in 1 year is about 3.35% or 0.45% than
the current 10 year rate.
• This
process
of
“bootstrapping”
understanding curve risk.
is
a
key
element
of
13. Bond Market Risks – Bootstrapping
How high can 10-year yields go?
• This is a question on everyone’s mind as it is driving the
corporate bond market, mortgages, and some days, even
equities.
• The
10-year
expectations,
rate
inflation
will
be
a
expectations,
function
and
of
growth
Federal
Reserve
Policy, and the shape of the curve.
• While growth and inflation expectations change and investors
have a wide array of views, Fed Policy and the Curve are easier to
analyze, and very important to the bond market.
14. Bond Market Risks – Bootstrapping
Start with the 2-year Bond
• The two year bond has spent the past 6 months trading in a
narrow range: 0.25% to 0.5%.
• The Fed remains committed to keeping Fed Funds, the overnight
rate low for the foreseeable future, in spite of creating negative
real short term rates for longer than any other period in recent
history.
• It seems safe to assume under the current Fed the 2 year yield
should stay stable around 0.40% where it currently is trading.
15. Bond Market Risks – Bootstrapping
Next, Look at the 5-year Bond
• The 2-year bond is at 0.4% and the 5 year bond is trading at
1.7%, towards the high end of its recent range, but well off the
0.65% low we saw last May
• The 2’s 5’s spread is 1.30% or 130 bps. That is high.
• For these rates to be “fairly priced” the 3-year treasury would
have to yield 2.55% in 2 years. The 3-year treasury currently
yields only 0.83%. That is a large rise in yields. So those that say
not much is priced in, are wrong
16. Bond Market Risks – Curve Risk & the 10 Year yield
The 2’s 10’s Spread going back to 1990
17. Bond Market Risks – Credit Risk
Credit or “Spread” Risk is Similar to Yield Risk
• Duration impacts change in spreads the same way duration
impacts changes in rates.
• There are credit spread “curves” which can be steep or flat and
tend to invert if a credit runs into problems.
• High-yield and EM spreads are typically more volatile than
Investment Grade Spreads.
18. Bond Market Risks – Credit Risk
Credit Spreads are often inversely correlated to Treasuries as in an
improving economy makes Treasury yields go higher, but makes spreads
improve. The recent extremely high correlation is unusual.
19. Bond Market Risks and the ETF’s
Market
Short Maturity Treasuries
Intermediate Treasuries
Long term Treasuries
TIPS
Investment Grade Bonds
High Yield Corporate
Floating Rate Notes
Leveraged Loans
Municipal Bonds
Preferred Shares
Emerging Market bonds
Rate
Yes
Yes
Yes
Some
Yes
Yes
No
No
Yes
Yes
Yes
Duration Credit
Low
Low
Medium Low
High
Low
Medium Low
High
Medium
Medium High
None
Low
None
Medium
High
Medium
High
High
High
High
20. A Deeper Look into Leveraged Loans vs High Yield
High Yield Bonds
Credit Risk
High Yield Companies
Interest Rate Yes, average maturity is
Risk
about 5 years
LIBOR Risk
Best Case
Worst Case
Not Directly
Lower yields, improved
credit spreads, with some
M&A Activity for large total
return
Leveraged Loans
Secured Debt of High Yield
Companies
Somewhat as LIBOR floor has
turned many loans into fixed
rate for forseeable future
Due to LIBOR floors most
loans will not see coupon
increases even if LIBOR
increases
Current Coupon since most
loans are callable at or near
current prices
The oversupply due to CLO
Yields rise or we see a return demand comes back to
of real credit risk
haunt the market
21. FIRC Risk Management In Action
YTD Performance based on ETF’s is
0.9% and 1.7% since October 1
launch.
“Beta” selection, whether an ETF or
mutual fund or closed end fund is
critical opportunity to outperform
this basic strategy as we mentioned
earlier – not all indices or managers
are created equal.
22. FIRC Risk Management In Action
YTD Performance based on ETF’s is
1.2% and 2.5% since October 1
launch.
This is designed to be a little more
frequently traded, making it more
difficult to execute via mutual funds
but still something that needs to be
considered as the performance
disparity between top performing
mutual funds and ETF’s grows.