Bond yields look attractive: bigger returns, bigger risks?

Investors are shifting from FDs to bonds for higher yields, underestimating the downsides

- Ananya Grover

Fixed deposits have long been the default savings instrument for conservative Indian households.

But as interest rates softened and FD returns slipped, more retail investors began moving into bonds in search of higher yields.

The shift has accelerated with the rise of online bond platforms that have made listed corporate bonds and non-convertible debentures (NCDs) easier to access. A September 2025 report by Assocham and Crisil Intelligence showed the number of clients registered with online bond platform providers (OBPPs)—platforms that allow retail investors to buy and sell listed bonds online and regulated by the Securities and Exchange Board of India (Sebi)—rose to 560,000 in FY25 from 350,000 in FY24. Monthly average retail volumes have grown at a compound annual growth rate of about 20% since OBPPs were introduced in 2022.

Retail participation has risen rapidly, but investor understanding of bond platforms remains thin.

Neha Juneja, founding member of EquiRize Securities, said retail investors have entered the bond market with different motivations—some seeking slightly higher returns than FDs, others treating bonds as high-yield fixed deposits, which she says is completely wrong. "People try to disregard risk," she said.

Credit risk

Satish Gangadhar Meda, 59, an IT freelancer, describes himself as a conservative investor who once stuck to AAA-rated or government-linked issuers. Like many retail investors, he invested in bonds issued by SREI, a non-bank infrastructure financier in Kolkata that had an AA rating at the time. It entered insolvency in 2021 after defaulting on payments, shaking his faith in the ratings system. "SREI was AA-rated and still we lost our principal," he said. SREI did not respond to emailed queries till press time.