Buying Many Products
It is a technique of buying multiple fixed income products, each with a different maturity.
When a product matures, monies can be reinvested in a new product with highest yield in the available time horizon.
In a rising interest rate scenario, the maturing principal can be reinvested at higher rates.
By staggering maturity dates, investors avoid getting locked into a single interest rate.
The laddering reduces risk and provides a predictable cash flow with adequate liquidity.(Content courtesy CIEL, ET Contributors)
FD laddering is a good concept for investors who always keep a part of their portfolio in FDs. One can follow this concept for their contingency funds if they keep them parked in the bank account or FDs.