​ETMarkets Smart Talk| ₹15 lakh to invest in bonds? Here's how Jiraaf's Saurav Ghosh would spread it across maturities

Bond markets have undergone a sharp shift in recent weeks, with investors moving from expectations of rate cuts to preparing for a period of elevated interest rates and tighter liquidity.

As yields rise, the challenge for investors is not just finding the right return but deciding how to spread their investments across different maturities.

Should investors lock in current yields, wait for rates to rise further, or stagger their investments to reduce the risk of getting the timing wrong?


In this edition of ETMarkets Smart Talk, Saurav Ghosh, Co-Founder of Jiraaf, shares his outlook on interest rates and bond yields and explains why a diversified approach across maturities could make sense in the current environment.

He also illustrates how an investor with ₹15 lakh could consider spreading the allocation across two-, three- and five-year bonds rather than committing the entire amount at a single point in the interest-rate cycle. Edited Excerpts –

Q) What has fundamentally changed in India's fixed-income market over the past few weeks?

A) The fundamental shift is that bond markets have moved from anticipating rate cuts to pricing in further monetary tightening. The RBI's 25-basis-point rate hike to 5.50% and its calibrated tightening stance have reinforced this change.

India's benchmark 10-year G-Sec yield has risen from around 7.2% at the beginning of October to approximately 7.4%. Higher global yields, elevated crude prices and tightening domestic liquidity have contributed to this repricing.

For investors, this presents an opportunity to lock in higher yields in listed corporate bonds. However, with interest rates still evolving, staggered investments across maturities make more sense than deploying the entire allocation at once.

Q) What is your base case for the Fed's policy trajectory through Q1 2027?

A) The Fed's decision to maintain rates at 3.75–4.00% in October reflects a cautious approach rather than a definitive direction for monetary policy. Our base case is for rates to remain broadly stable through the first quarter of 2027, although further adjustments will depend on incoming economic data.

While inflation remains elevated and two policymakers favored a 25-basis-point hike, further rate cuts cannot be ruled out if inflation moderates and employment conditions weaken.

Conversely, resilient consumption and persistent energy-driven inflation could keep rates elevated or necessitate additional tightening. The Fed's next move will ultimately depend on whether inflation or slowing growth emerges as the greater concern.

Q) Could a more hawkish Fed trigger further pressure on the rupee and foreign portfolio flows into Indian debt?

A) A more hawkish Fed could put additional pressure on the rupee and foreign debt flows, even if the RBI holds domestic rates unchanged.

India's 10-year G-Sec yield is around 7.4%, compared with approximately 5% in the US, providing a spread of nearly 240 basis points. While this makes Indian debt relatively attractive, foreign investors evaluate returns after accounting for currency movements and hedging costs.

A stronger dollar and continued rupee depreciation could erode this yield advantage. However, India's relatively higher yields and measures encouraging foreign participation in government securities could provide some support. Ultimately, foreign flows will depend on the combination of yield differentials, currency stability and global risk appetite.

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Q) How should investors choose between fixed deposits, government securities and corporate bonds?

A) The choice should depend on liquidity needs, investment horizon and the role fixed income plays in the portfolio.

FDs remain suitable for emergency reserves and short-term savings, while government securities provide sovereign credit quality for investors comfortable holding until maturity. Listed corporate bonds offer an additional yield premium, along with contractual coupon payments and defined maturities.

For perspective, five-year AAA corporate bond yields were around 8.1% in late October, compared with approximately 7.36% for comparable government securities.

Investors with a three- to five-year horizon can consider diversifying across investment-grade corporate bonds rather than concentrating on one issuer or maturity. Credit quality, repayment capacity and liquidity should remain central to the selection process.

Q) What is your outlook for interest rates and bond yields over the next three to six months?

A) We expect interest rates to remain elevated over the next three to six months, with bond yields likely to experience further volatility. While the RBI has already raised rates by 25 basis points, persistently high crude prices and inflationary pressures leave room for additional tightening.

Our base case is for the 10-year G-Sec yield to trade broadly in the 7.3–7.7% range, although developments in global rates and energy prices could influence this trajectory.

For corporate bond investors, the opportunity lies in gradually locking in prevailing yields. Rather than waiting for the absolute peak, investors can stagger purchases over several months and across maturities, allowing them to participate in any further upward movement in yields while securing today's available rates on part of their allocation.

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Q) What is the one fixed-income strategy investors should avoid in the current environment?

A) The biggest mistake investors can make is over-optimizing their fixed-income investments in an attempt to time the interest-rate cycle perfectly.

An investor waiting for another 25 or 50 basis points of yield may miss an attractive entry point if the market reverses. Equally, deploying the entire allocation at once assumes that today's yields represent the peak.

Another mistake is concentrating the portfolio in long-term bonds simply because yields are attractive. Longer maturities carry greater sensitivity to interest-rate movements and can expose investors to significant price fluctuations if they need to exit early.

A more prudent approach is to spread investments across different entry points and maturities. A portfolio with bonds maturing in two, three and five years, for instance, reduces concentration and creates opportunities to reinvest as market conditions evolve.

Q) Should investors interpret September's ₹1.83 lakh crore outflows as a loss of confidence in fixed income?

A) September's outflows should not be interpreted as a structural loss of confidence in fixed income. Quarter-end withdrawals are often driven by corporate treasury requirements, advance tax payments and short-term liquidity management rather than a fundamental reassessment of the asset class.

For individual investors, short-term institutional liquidity movements should not determine long-term investment decisions.

In fact, elevated yields have improved the entry environment for listed corporate bonds. Investors can selectively build exposure across credit ratings, issuers and maturities, focusing on contractual cash flows and the issuer's ability to meet its obligations rather than reacting to temporary market flows.

Q) Should investors favor shorter maturities or gradually lock into longer-term yields?

A) The current environment makes a strong case for maturity diversification rather than an exclusive preference for short- or long-term instruments.

Shorter-maturity listed corporate bonds provide earlier principal repayments and opportunities to reinvest if yields rise further. Medium-term bonds, particularly in the three- to five-year segment, allow investors to secure prevailing yields for a longer period, subject to issuer repayment.

For instance, an investor allocating ₹15 lakh could spread ₹5 lakh each across bonds maturing in two, three and five years, while staggering purchases over the coming months.

This approach diversifies both reinvestment and entry-point risks. Investors can lock in yields on bonds purchased today without committing their entire capital at a single point in the interest-rate cycle.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)