Investors turn to bonds for higher yields amid equity risks, elevated valuations

Investors looking to earn more than bank deposits and unwilling to take risk in equities at elevated valuations are logging on to bond platforms to buy into higher yielding fixed-income instruments.

Platforms such as bondbazaar, indiabonds, bondsindia, GoldenPi, and several others offer investors an opportunity to buy a variety of bonds ranging from PSUs, tax-free bonds, government bonds, NBFC and microfinance instruments based on their risk appetite and build a debt portfolio depending on their cash flow needs.

With the indexation benefit of debt mutual funds no longer available, and debt funds not allowed to predict returns, many investors now prefer bonds due to good visibility of returns.

Bond platforms generally earn revenue by marking up the price of bonds, while in the case of primary market issuances they earn a commission from the issuer. A wide range of bonds is on offer with investors getting to earn returns of 7-20% depending on the rating and risk that they are ready to take.

"Typically, investors who come to our platform want to earn higher returns than bank deposits and look to earn between 9% and 11%. In this range, we can offer them bonds that are rated AA to A," says Suresh Darak, Founder Bondbazaar.

Distributors point out that investors are keen to buy into bonds that help them earn 200-400 basis points more than bank deposits. Many are comfortable with a rating upto A and do not want to go down as the risk increases. Among some popular bonds amongst investors are AA rated bond of Shriram Finance maturing in March 2028, yields 9.2%, a 9.65% Adani Enterprise bond maturing in September 2027 earns 9.55%, while a Sammaan Capital bond maturing in June 2026, while offer as high as 12.75%.

In comparison, a 3 year fixed deposit with SBI pays 7%, thus helping investors earn a good 200-500 basis points more. Investors can diversify by buying a number of bonds based on their tenure, return, rating and interest frequency. Investors could start investing with as low as ₹10,000 to ₹ 1 lakh, depending on the face value and availability of the bonds.