11% Fixed Returns? Ultimate BOND Investing Guide for Smart Investors
The video gives as overview of bonds, focusing on corporate bonds and following points: 1. Additional return say 4% over FD over a period makes substantial difference 2. Risk in bond investing and chances of default 3. Type of Bonds – Gsec, Corporate Bonds 4. Interest and Principal payout terms, repayment schedule 5. Importance of Credit Rating in bond investing 6. Concept like Collateral Security, Coupon rate, Clean Price, Dirty Price (includes accrued interest), Yield till maturity (YTM), Coupon rate Video is sponsored/partnered by Wint wealth. My objective to share this video, is for above concepts clear and not to promote Wint wealth. There are various online platforms for investments in bonds, the objective here is to get the concepts clear. For more details on FAQ’s on bond investing, visit our website caakinvestments.com/bonds : Section – “FAQs on Bond”
Why bonds belong to every Indian investor’s portfolio—and why now is the ideal time to invest
Why bonds belong to every Indian investor’s portfolio—and why now is the ideal time to invest For Indian investors seeking stability in their portfolios, bonds are emerging as an increasingly attractive asset class. With the recent volatility in equity markets, portfolio diversification via bonds has gained prominence, as reflected in increased investor participation. Retail participation in bonds has soared since the introduction of the online bond provider platform norms by the Securities and Exchange Board of India (SEBI) in November 2022. Resilient portfolio: Stability in an uncertain market Investments in India have traditionally been dominated by equities and bank fixed deposits (FDs), each with its own limitations—equities being volatile and bank FDs offering limited returns that are often below the inflation rate on a post-tax basis. NIFTY has given good returns in the last decade, but it remains prone to market cycles and, in the current macro environment, can be classified as highly volatile. FDs, on the other hand, often fail to beat inflation post tax. Bonds, as fixed-income instruments, strike a balance between these two extremes, providing predictable inflation-beating returns with relatively lower risk. Bonds provide stable returns between 8-15% with limited risk. It also helps investors diversify their portfolio from market risk to credit risk. Bonds are primarily meant for capital preservation; however, at volatile times like this, they can help with capital growth at a better rate than equities and generate passive income. In India, the bonds market was previously largely limited to institutional investors, which is not the case today. With the growing accessibility of bonds through new-age platforms and the minimum investment amount being reduced to Rs 1,000, retail investors are now exploring this asset class with small ticket size To fully appreciate the role bonds play in a resilient portfolio, it’s essential to understand what bonds are and how they work. Understanding bonds: More than just an alternative to FDs Bonds are essentially debt instruments issued by corporations or governments to raise capital. In return, investors receive periodic interest payments (coupons) and the principal amount at maturity. The appeal of bonds lies not just in their predictable income but also in their wide variety—corporate bonds, treasury bills (T-bills), government securities (G-Secs), state development loans (SDLs), and even sovereign gold bonds (SGBs), each catering to different investor needs. The return on a bond is fixed by the yield promised by the borrower at the time of taking the debt. Unless there is a default by the borrower, the return on the bond continues as promised and is not subject to any market variance. Bonds are also a good instrument for investors who want predictability of cash flows to meet specific goal-based needs. Corporate bonds offer higher yields than government bonds, though they come with varying degrees of credit risk. A AAA bond typically offers a yield of 8%, whereas a BBB bond might offer a yield of 13% for a one-year bond. Bond returns also vary with the duration of the bond. The longer the duration, the higher the return on the bond. As per CRISIL, up to the fiscal year 2024, the default rates of corporate bonds were at a 16-year low at 1.3%. The average cumulative default rate of a typical CRISIL A-rated one-year bond was ~0.07%. This denotes the relatively low risk level of corporate bonds over the last decade. As India gears up to achieve a US$7-8 trillion economy within the next five years, a significant portion of this capital formation is expected to be driven by the expanding bond markets, currently valued at $2.69 trillion. Data sourced from the Clearing Corporation of India (CCIL) and SEBI reveals that the Indian bond market stood at US$2.69 trillion at the end of December 2024, with the corporate bond market surpassing US$602 billion, constitutes 22% of bond market. Is now an ideal time to enter the bond market? Timing plays a crucial role in any investment decision, and the current market conditions make bonds a very attractive choice. Equity markets are in a flux and remain highly uncertain given the tariff and trade wars. The effect of a rate cut is yet to translate to the wider economy, and more rate cuts are forecasted in the remaining part of the year. Bond yields are currently at the higher end of the cycle, offering good returns. We already see yields dipping on the sovereign bonds, and the same would follow on corporate bonds. As an investment choice, it would be useful to invest in bonds now and lock in a good return before the rate cut impact takes place. Online bond platforms are making it easier than ever for retail investors to enter this space with investments as low as Rs 10,000 and with wider transparency of data and regulatory support. Fixed income inclusion would lead to a healthy portfolio. Choosing the right bonds: What investors should consider Investors should evaluate several key factors when selecting bonds, including credit rating, tenure, and issuer sector. Investments can start from as low as Rs 10,000, with potential returns of up to 18% and tenures ranging from 3 to 36 months. Credit rating, assigned by agencies such as CRISIL or ICRA, is a critical determinant of a bond’s risk level. Bonds rated AAA are considered the safest, while lower-rated bonds carry higher risk but also offer potentially higher returns. Tenure is another essential factor—short-term bonds provide liquidity, whereas long-term bonds can lock in attractive interest rates. Corporate bonds from established sectors such as banking or infrastructure tend to offer better security, while emerging sector bonds might provide higher yields but come with added risk. Understanding the repayment schedule, maturity date, and coupon rate can help investors align their bond investments with their financial objectives. Bond platforms play a crucial role in making bonds accessible and providing all the relevant data points, putting the customers at ease and ensuring investments are well-informed and convenient to make. Investors can explore a wide range of listed bonds, including corporate bonds,
Why investors should look at tax-free bonds now
Who should invest? 1. High tax bracket investors: if you’re in the 30 percent slab, tax-free bonds are your secret sauce. The higher your tax liability, the brighter these bonds shine. 2. Senior citizens: with predictable cash flows and near-zero default risk (most issuers are AAA-rated), they’re ideal for retirees prioritising capital preservation. 3. Portfolio diversifiers: even aggressive equity investors benefit by balancing volatility with steady, tax-smart income. Action Plan With the Reserve Bank of India’s (RBI’s) rate-cut cycle gaining momentum and finite supply in the secondary market, delaying could mean paying steeper premiums later. Here’s a potential action plan: 1. Assess your tax bracket: if you’re above 20 percent, tax-free bonds merit serious consideration. 2. Screen bonds: filter by issuer rating (AAA), maturity (10-15 years), and YTM using SEBI-registered platforms. 3. Consult an advisor: align purchases with broader goals — retirement, education, or legacy planning.
Aye Finance Pvt Ltd – Gets SEBI nod for IPO
Google parent Alphabet – backed Aye Finance Pvt Ltd gets SEBI go- ahead for IPO. Good time to consider investment in bonds of Aye Finance Pvt Ltd.
100 – year bonds?
Life Insurance Corporation of India (LIC) wants the Reserve Bank of India (RBI) to issue souvenir bonds with a 100 year tenure. The state run insurer chief Siddhartha Mohanty has said that LIC is in discussions with RBI on the idea. For an insurer, such long bonds can be assets that outlast the long term liability that arise from its life-span coverage of policy holders. But such bond must also be reasonably liquid or easy to sell in the wider bond market. To be sure RBI begin issuing 40 years government bonds in 2015 and also had a successful 50 year issue in 2023. Pension funds, insurers and other institutions with long liabilities find this useful as investments. But 100 year bond may turn out to be a stretch too far. Long term bonds are held on the assumption of sustained policy stability. The real value of money invested must hold largely steady . So inflation, interest rate and their drivers (like fiscal deficits) must stay within limits. Else, those bonds would lose market value. Given how hard it is to ensure investor of that, a market for 100 year bonds won’t be easy to create. And issuance for a single subscriber is unwise. First India should test the depth of demand for shorter tenure long bonds.
