India’s debt market may be in its nascent stage with limited opportunities, but you can still find some safe bets, say Gaurav Pai & Preeti Kulkarni
It’s hardly a secret that the Indian debt markets are still in the nascent stage and offer limited opportunities for individual investors looking to incorporate debt in their portfolio.
But most experts say as the market matures in the coming years, debt could gain traction as one of the best investment avenues for investors.
“Investors, looking at options beyond the low returns of bank deposits and volatility of stocks, are increasingly eyeing debt issued by corporates,” said Rujan Panjwani, president of Edelweiss Group. “This has come at a time when corporates themselves are looking to raise funds. Fixed income products can bridge this gap effectively,” he said.
ET did a quick check on all the possible ways through which you can buy debt in your portfolio today. Most experts say yields on government bonds may not go beyond a particular level, making them good bets in the long run. Corporate debt too is currently offering high yields, making it a reliable option.
Ask Wealth Management Solutions head Nishant Agarwal is advising against investments in long-dated papers (6-10 years) since he expects them to hedge higher in the coming days. For an investor with an investment horizon of 6-12 months, he recommends short-term bonds and fixed maturity plans (in the next three months to benefit from double indexation).
Through Mutual Funds
Arjun Parthasarathy, head of fixed income at IDFC Mutual Fund points out that the biggest advantage of a mutual fund is the wide range of options available. “Those looking for an avenue to invest for the long term can look at long-term bond funds while those planning to park their money for the short term can consider liquid funds, which offer better returns than the savings bank rate,” he explains.
There are also short-term floaters and fixed maturity plans, whose yields go up along with the interest rates. Besides, institutional investors dominate the segment currently, and retail investors’ understanding of debt markets could be limited.
Through broker/Directly
This is a less popular option, but hardly the gigantic task it is made out to be. You can buy both government securities and corporate bonds through a bank or a bond house (a primary dealership like ICICI Securities PD or STCI or IDBI Gilts.)
This is not any more difficult than buying shares through a stock broker. All it requires is an investor to open a secondary constituent’s subsidiary general ledger (CSGL) account with a bank, after which the bank will hold all the government securities in an electronic form.
For buying corporate bonds, one can either participate in the primary market (i.e. when they are being first issued) or the secondary market (exchanges where they are traded.) This can also be done through a bank, bond house or a brokerage house that offers fixed income facilities. This, however, requires the investor to have a demat account.
An investor can buy government bonds with as little as Rs 10,000, the face value of a single government bond. To get subscriptions through the primary market for corporate bonds requires a large sum in the order of a few crores. However, investors can buy corporate bonds in the secondary market through much smaller ticket sizes, even less than a lakh.
Non-convertible debentures listed on stock exchanges like Tata Capital, L&T Finance, etc, in fact can be brought from NSE-affiliated brokers in ticket sizes as low as Rs 10,000.
Through PMS
One would need to sign an agreement with the PMS manager, who will open a separate bank account, demat account and a CSGL account. Government bonds are issued in the demat form with RBI functioning as the depository. Banks can open a sub-account (constituent SGL A/C) within their account for large investors.
The bonds will be sold or bought by the PMS manager on the investor’s behalf. Only large and more sophisticated investors have traditionally used this method.
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