How to balance your portfolio with NCD IPOs and Sovereign Gold Bonds?

[Abhilash Rathore]

Investing in financial markets is about creating a balanced portfolio that meets your risk appetite, financial goals, and investment timeline. Two popular options in India are Non-Convertible Debentures and Sovereign Gold Bonds. These instruments cater to different investment needs and, when used together, can create a well-rounded portfolio. 

 

Why balance your portfolio?

 

Firstly, why balance your portfolio? A balanced portfolio helps manage risk and optimise returns. When you combine NCD IPOs and SGBs, you blend two asset classes: fixed-income securities and commodities. This combination helps you navigate market volatility and protect your wealth over the long term. Let us explore ways to balance your portfolio by investing in an NCD IPO and an SGB:

 

Diversification for stability and growth

 

NCD IPOs offer stability with their fixed interest payments, while SGBs provide growth potential as gold prices appreciate. By including both in your portfolio, you protect yourself from market fluctuations and inflation, which gold generally performs well against. This balance ensures that one part of your portfolio delivers regular income while the other has the potential for price appreciation.

 

Mitigating risks

 

NCDs are subject to the issuing company’s credit risk. While secured NCDs offer protection, investing in SGBs can act as a hedge. Gold often holds its value or even increases during economic downturns, making SGBs an excellent safeguard against market risks.

 

Long-term wealth creation

 

NCDs are typically issued for three to 10 years, providing long-term, fixed income. On the other hand, SGBs have an eight-year tenure with the flexibility to exit after five years, giving you time to benefit from gold price appreciation while earning annual interest. This long-term perspective helps you achieve your wealth-creation goals.

 

Interest and capital appreciation

 

With NCD IPOs, you get regular interest payments, adding a constant income stream to your portfolio. SGBs also offer interest (currently 2.5%) and the potential for capital gains if gold prices rise. Combining Non-Convertible Debenture and Sovereign Gold Bond lets you enjoy both regular returns and the possibility of increasing wealth through gold.

 

Portfolio allocation: How much to invest?

A good rule of thumb for portfolio diversification is to allocate some of your investments to safe, fixed-income instruments and another to growth-oriented assets. For example, consider allocating 60% to NCD IPOs for stability and fixed returns and 40% to SGBs for long-term growth potential. However, this ratio changes depending on your risk tolerance, investment goals, and market conditions.

 

Conclusion

 

Balancing your portfolio with the NCD IPO and Sovereign Gold Bond scheme gives you the best of both worlds: the security of fixed-income investments and the growth potential of gold.

While NCDs provide regular interest income, SGBs offer interest and capital appreciation, making this combination a powerful strategy for long-term wealth creation.

 

By diversifying across these assets, you can protect your portfolio from market fluctuations, earn steady returns, and build wealth over time.