CONSERVATIVE INVESTORS NEED A MIDDLE PATH BEYOND DEBT

To understand the challenge facing conservative investors today, it helps to look at the interest rate cycle.

- RUSHABH DESAI

The RBI is in an easing phase to support growth. In 2025, it cut the reporate by a cumulative 125 basis points to 5.25%, pushing AAA corporate bond yields down from about 8% to the 6-7% range. With consumer price inflation (CPI) at a low of 0.71%, further rate cuts in 2026 is possible, potentially compressing yields further and narrowing return options for conservative investors.Inflation reality

India’s investor base remains skewed towards debt and fixed income, with many conservative investors relying heavily on interest income. While headline inflation is currently low—driven by softer prices of vegetables, pulses and spices—miscellaneous goods and services inflation remains elevated at 5-6%.

As India develops, structural forces are likely to push interest rates lower. With indexation benefits no longer available for pure debt products, earning attractive post-tax returns from traditional fixed income is becoming harder.

A middle path