Dependable income is subject to the credit risk of the issuer of the bond.
If interest rates go up, you have a bond maturing soon that you can reinvest at a higher interest rate. Any existing position is priced based on last night's price and yield. You have a portfolio of short, mid and long term bonds, which gives you an attractive current yield. If an issuer defaults no future income payments will be made. It is a simple, but effective strategy that bond investors can use to protect their portfolio and manage cash flow. Consider a portfolio of Rs 20 lakh with Rs 5 lakh invested in the monthly income scheme.
The date of first principal payment is the month and year that you want your first bond to mature and return its principal. Consult your tax advisor for advice about your specific situation. In India, for those with a corpus of less than Rs 5 lakh, or senior citizens with less than Rs 20 lakh of funds, laddering is not required. The lower return is the price for protection against rate increases. Bonds from the central rung month appear at the top of the list of eligible bonds. If you own existing fixed income positions, you can include them as part of a second set of summary calculations.
The result is you have a bond maturing every year for the next ten years. After a year, the maturing post-office term deposit can be invested in a three-year term deposit. If interest rates drop, only a small portion of your portfolio the maturing one-year bond must be reinvested at the low rate. For instance, you could invest 20 per cent each in securities that are maturing between one and 5 years.