Low-Risk Investment options for Risk-averse investors

Due to the current market volatility, investors should be ready for a rough ride in the months to come, therefore it is crucial that they maintain their discipline. Building a portfolio that has some less-risky assets can be useful in helping you ride out volatility in the market.

Naturally, there is a cost associated with reducing risk exposure: long-term returns for investors are likely to be lower. That might be acceptable if your objective is to protect your capital and keep your interest income consistent.

Bonds

Bonds are a common way for businesses and governments to raise money from investors. Bondholders receive their principal back at maturity along with regular interest payments.

Bonds provide principal protection and regular interest payments, which are calculated as the product of the coupon rate (interest rate), and the bond's face value, or the principal. Bonds are the perfect investment for those who don't like taking risks.

Corporate FD’s

Corporate Deposits are common and a desirable investment option for investors who do not want to take risks and also want regular interest payments. Most people think of banks when they hear the term Fixed Deposits, but there are better options in FDs apart from banks.?

These are known as Corporate FDs, and they offer higher interest rates compared to the banks

Corporate FDs are not influenced by the market performance and the interest on these bonds are higher compared to banks which makes it a great investment option for investors.

Market Linked Debentures

Market Linked Debentures are debentures with a pay-off that is linked to the movement of another security or indices, such as the NSE Nifty 50 index or the 10y government security (G-sec) yield, rather than a fixed rate as a conventional coupon-bearing debenture.

There is a kind of MLD known as principal protected (PP) MLDs, which ensures that subject to the credit risk of the issuer, you will receive at least the principal sum at maturity, even if the other market’s performance is significantly unfavorable.

Debt funds?

Debt funds are known for giving stable returns as they are less dependent on market sentiments. Debt funds invest 65% of the corpus in debt instruments like certificates of deposits, debentures, bond papers, etc. that do not fluctuate as easily as stocks. Being less sensitive to market movements, they may not generate as high returns as equity funds but also do not fall rapidly.

Conservative investors who seek capital appreciation with low risk should invest in debt funds. With investments made in fixed-income securities that have fixed maturity periods and rates of interest, they are a bit immune to market volatility. Therefore, adding these funds to the portfolio with some equity funds balances the risk-return profile.