Investment Combo (Debt and Equity)

Investment Combo

Equity markets have been experiencing a bullish phase recently. However, the market pendulum is one that swings forever between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them relatively cheap).

During unpredictable phases of the market, you try to read as many articles possible and take every bet to reap maximum gains out of the markets. At such a point, wouldn’t it be ideal if your principal was fully protected while your portfolio also had an exposure to the equity markets? Safety of principal may be achieved through investing in the debt asset class through fixed income securities like FDs, NCDs or ESS. However, they will not guarantee maximum returns. In case of such investment options, there are assured fixed returns.

Such debt products are selected due to the following advantages over other riskier products:

1.    Principal protection

2.    Payout not influenced by market risks and hence fixed

3.    Option of choosing Monthly/Quarterly Payout

4.    More liquid investment 

Individuals earn assured monthly payouts on such instruments. This interest earned can be invested into equity mutual funds through the SIP route to capture the upside of the markets without risking your principal invested. The opportunity to predict fixed return from less-risky debt product and using its returns to invest in an equity SIP is illustrated below.

For the purpose of calculations, we’ve analyzed the returns made by an equity mutual fund and a debt option such as Non-convertible debentures (NCD) for the last 10 years (NCDs are long term debt instrument issued by the companies which offer equal to or more than 200 basis points than bank fixed deposits. They also earn fixed returns through coupon interest that is promised to be paid by the companies with an option to choose the frequency of payments.Company pays back the principal amount on the date of maturity.

Assumptions made for illustration purpose:

1.     Similar returns in NCDs were available 10 years back

2.     Bank savings interest rate: 4% p.a.

3.   Interest on NCDs is credited in bank and left untouched, hence earning 4% returns for 10 years


A sum of Rs.1,30,000 is invested into NCD in open issue which offers coupon return @ 9.50% p.a., payment being made monthly. The said investment fetches monthly payout of Rs.1029.16 which is then parked as an SIP in Equity MF (Rs. 1000pm).

The above practice is continued for 10 years till the NCDs mature.

On the maturity of such NCDs, the principal is received fully.

Investment Combo

The above chart clearly shows the reward for making your money work for you.

Investment Combo

It’s evident from the above that investments in equity holdings will provide better returns in long-term as against money left idle in Savings A/c. Risk-averse investors should consider this option of investing in debt instruments with a regular payout to ensure principal safety and the yield generated by them into equity markets through mutual funds to get the maximum exposure.

To know more about financial planning click here: Wealthsecure

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