Do-it-yourself retail investors can start getting their feet wet in corporate bonds in 2025 while keeping a few risk factors in mind
Indian debt investors have a wide and deepening market for both government and corporate bonds to choose from.
Photo imaging: Chaitanya Dinesh Surpur
Over the past 18 months bond investments have checked off most boxes investors look for. Double digit returns? Check. Low volatility? Check. Safety of principal? Check. With their downside protected, it’s not hard to see why buying bonds is a deal few should refuse in 2025.
A key reason for this is that interest rates have stayed high in both the US and India. The US 10-year bond yield—considered a proxy for the global risk-free rate—has ranged between 3.6 and 5 percent in 2024. As a result, all debt investments are yielding more globally. And even with rates expected to come down, the consensus, for now, is that they will settle in the 3 percent range. Expect bonds yields to remain elevated.
Closer home in India the situation is the same. The 10-year government bond yields 6.9 percent. On the other hand equities (Nifty 50) are priced at 22 times, implying an earnings yield of 4.5 percent. With GDP slowing down to 5.4 percent in Q2FY25, betting on a continued equity rally may prove to be a fool’s errand.
“With a one-two year time horizon, the risk reward equilibrium has shifted from equities to debt,” agrees Hemant Daga, co-founder and CEO at Neo Asset Management who runs three regular income strategies with a three-month to five-year time horizon.
Indian debt investors have a wide and deepening market for both government and corporate bonds to choose from.
(This story appears in the 24 January, 2025 issue of Forbes India. To visit our Archives, click here.)