Yield Returns Than Government Bonds; Here's What Experts Suggest You Should Do

India's Bond Market Reaches Rs. 300 Lakh Crore, Attracts Retail Investors

The Indian bond market has grown to nearly Rs. 300 lakh crore in size, with a significant increase in participation from retail investors and high-net-worth individuals over the past six months.

• Participation in the bond market has risen almost fourfold to around Rs. 1.6 lakhs per month.
• With uncertainty and volatility in global markets, investors are finding bonds to be a safer bet, offering fixed and attractive returns.

Rate Cuts and Market Sentiment

In the US, the Federal Open Market Committee cut the benchmark interest rate by a total of 50 basis points this year, while India's Reserve Bank of India has slashed the repo rate by 100 bps so far in the year.

• Some market participants believe that there could be more rate cuts on the way, especially after RBI Governor Sanjay Malhotra indicated that there was still room to cut rates after a record low inflation print.
• However, many market participants are of the view that the easing cycle is near its end.

Expert Views on Bond Market

Experts say that this presents an opportune moment for investors who want to invest in bonds to rejig their bond portfolio and switch more to corporate bonds, which offer a better yield.

"Rates have bottomed out. So, it's more of an accrual strategy for the next year. So, if somebody wants to take a short-term (view), for up to 3 years, then corporate bonds are attractive,"

— Marzban Irani, chief investment officer- fixed income at LIC Mutual Fund Asset Management Ltd.

Corporate Bonds vs. Government Bonds

• While government bonds are a safer bet compared to corporate bonds because of the security and higher liquidity of these bonds compared to the latter, for investors looking to take a view of up to three years, corporate bonds seem attractive.
• Experts believe that buying short to medium-term investment-grade corporate bonds could be a solution to make the most of the high-yield opportunity during the next few years.

Investment Strategy

Experts recommend investing in shorter to medium tenure securities, while reducing exposure in longer tenure bonds.

"In corporate bonds, go in the 3-4 year segment that is the best segment…next one year, rates are expected to be static. So, the 4-year bond that you buy today, 1 year down the line, will become a 3-year bond. It will give you protection also if the interest rate reverses,"

— Marzban Irani, chief investment officer- fixed income at LIC Mutual Fund Asset Management Ltd.

Conclusion

With the bond market expected to remain range-bound, experts recommend investing in corporate bonds, especially in the 3-4 year segment, to make the most of the high-yield opportunity during the next few years.

"I suggest investing in Gilts as the Corporate Bond market crops up issues from time to time,"

— Abhishek Kumar, a Sebi-registered investment adviser.