Should You Invest in Market-Linked or Fixed Income Products?

Market-linked products don’t guarantee a fixed income. Returns from these investments depend on the debt and equity markets. Returns are high if the markets perform well. Else the returns are low and result in losses. On the other hand, fixed income investments offer steady regular income to the investor. The returns are measurable and guaranteed. Are you confused about which is the best investment scheme? Read on to make an informed decision. 

Types of Market-Linked Products

Unit Linked Insurance Plans (ULIPs)

These are life insurance plans that also offer returns linked to the performance of the markets. You must pay a premium to keep the plan active. Plus you can invest in debt, equity or hybrid funds. 

Equity Mutual Funds

These invest in a portfolio of solely equity stocks. Depending on the type of stocks, these MFs can be multi-cap, small-cap, mid-cap and large-cap funds. Sectoral funds invest in stocks of organisations under certain sectors. 

National Pension System (NPS)

This government-backed scheme helps secure the post-retirement life of investors with different risk profiles. Investments in NPS can be allocated to equity or debt assets. Returns depend on the performance of the respective markets. 

Types of Fixed Income Products

Debt Securities

These are long-term fixed income investments like corporate and government bonds. The corporate or government entity pays out interest periodically when you invest in the bonds. The interest rate is fixed. 

Time Deposits/ Fixed Deposits

You can deposit a certain amount with a financial institution or bank for a predetermined tenure. Over this duration, you receive interest at a particular rate at periodic intervals. 

Income Plans

These are a type of life insurance plans that also come with the benefit of periodic payouts. You must pay premiums for a certain period. Then the insurance provider offers the income benefits annually, semi-annually, quarterly or monthly. 

Market-Linked vs. Fixed Income Products

Risk Profile

Market-linked products are riskier since the returns are neither specified nor certain.

Returns

Market-linked investments have the potential to offer higher returns which can sometimes even beat inflation. 

Tax

What you earn from fixed income products is usually taxed as income from other sources. However, market-linked investments come with more tax benefits. 

Which is the Best Kind of Investment Scheme? 

Fixed income avenues are more suitable if you invest with a low risk appetite or are approaching retirement when you won’t have any steady income source. However, remember that at best, the returns are average. 

Market-linked investments are more appropriate if you can invest while taking a higher risk. People who have enough disposable funds and young investors can usually invest in these instruments. 

Still unsure which is the best investment scheme for you? In that case, you can wisely include both market-linked and fixed income products in your portfolio. Thus, you can enjoy both appreciation and preservation of capital. As you age, you can reallocate your capital in the assets under these categories of investment. When you invest in market-linked avenues like ULIPs, ensure to choose a reputed insurance company.