1. A ladder of debt products can be compared to an actual ladder for better understanding, which would, thus, have steps/rungs, a height and material to make it.
2. Height is difference between shortest and longest maturity in portfolio of specific material, of few months or many years.
3. Steps / rungs are arrived at by dividing total investment by total number of years for which you wish to have the ladder, and is total number of used material with more rungs ensuring it is well diversified.
4. Materials used for ladders are fixed income investments like bonds, govt. securities, debentures, fixed deposits, NSCs, etc. of different maturities.
5. In case one doesn't need money on maturity dates, he can reinvest in new instruments of various maturities and amounts at prevalent interest rates to continue laddering process.
6. As interest rates keep changing due to inflation, domestic growth, money supply or global economy, "laddering" is a fixed income strategy made by spreading corpus evenly among various debt products that mature at regular time intervals, which could be as short as 1 month and as long as 10 years, depending on his risk appetite and goals, offering cash flows as per goals, by maturity of products at regular intervals.
7. Getting stuck with interest rates is also avoided, as instruments that offer better interest can be chosen as soon as old instruments mature, besides managing market volatility by avoiding getting locked into a product for an extended period, thus diversifying investments and reducing risks, by starting with shorter duration products, and then expanding the ladder gradually as needed.
2. Height is difference between shortest and longest maturity in portfolio of specific material, of few months or many years.
3. Steps / rungs are arrived at by dividing total investment by total number of years for which you wish to have the ladder, and is total number of used material with more rungs ensuring it is well diversified.
4. Materials used for ladders are fixed income investments like bonds, govt. securities, debentures, fixed deposits, NSCs, etc. of different maturities.
5. In case one doesn't need money on maturity dates, he can reinvest in new instruments of various maturities and amounts at prevalent interest rates to continue laddering process.
6. As interest rates keep changing due to inflation, domestic growth, money supply or global economy, "laddering" is a fixed income strategy made by spreading corpus evenly among various debt products that mature at regular time intervals, which could be as short as 1 month and as long as 10 years, depending on his risk appetite and goals, offering cash flows as per goals, by maturity of products at regular intervals.
7. Getting stuck with interest rates is also avoided, as instruments that offer better interest can be chosen as soon as old instruments mature, besides managing market volatility by avoiding getting locked into a product for an extended period, thus diversifying investments and reducing risks, by starting with shorter duration products, and then expanding the ladder gradually as needed.