Corporate bonds in a sweet spot

FIRST-TIME INVESTORS SHOULD START WITH AAA OR AA RATED BONDS

- SAIKAT NEOGI

AS BANKS REDUCE fixed deposit rates, investors should consider corporate bonds for higher returns. Unlike deposits that immediately reflect changes in repo rates, bond yields tend to adjust gradually, creating a yield cushion that investors can benefit from.

Corporate bonds continue to deliver a favourable risk-reward trade-off with yields of 9-11% for AA-rated bonds. With predictable cash flows, secondary market tradability and a well-defined repayment hierarchy, these instruments bring transparency and structure to a portfolio. With online bond platform providers improving access and transparency, retail investors can now participate with greater ease.

Vishal Goenka, co-founder, IndiaBonds.com, says with falling bank deposit rates and the RBI's neutral stance, investors will have to look beyond traditional avenues for higher returns. "Corporate bonds—especially those issued by high-quality, investment-grade entities—offer a good alternative," he says.

Higher yields

The yields offered by corporate bonds are higher than the fixed deposit rates offered by state-owned banks and large private sector banks. The spread between them is likely to increase as banks cut their rates.