Seize the moment! 5 reasons why now is the best time to invest in corporate bonds

Bonds aren’t new to India; they have been around for decades. But in recent times, the bond market has truly started to flourish. Consider this: between March 2018 and March 2023, Indian corporate bonds have grown by 53% (totalling $510 billion) and the country’s bond market was valued at ~$2.34 trillion (as of 22 March 2023). 

But what has led to this perceptible increase in investor interest? Let’s dive in.

Factors contributing to the bond market’s momentum

Accessibility

Unprecedented accessibility is one reason why corporate bonds have grown in popularity. In recent years, there has been an influx of bond issuers—4,000+ as of 2022, and 15+ online bond platforms making these securities accessible to retail investors —which means investing in corporate bonds has never been this easy. But this is not the only reason.

Macroeconomic Conditions

Macroeconomic turbulence, for one, has had an important role to play. Upheaval at a global level, along with market volatility, has compelled investors to weigh risk against reward more closely and re-evaluate their investment approach. In part, it has resulted in a growing sentiment amongst investors to shift their focus towards safer, more stable avenues—such as corporate bonds—to shield their wealth.

Financial Awareness

Additionally, there is greater awareness about the importance of a balanced investment strategy. Not only are investors more attuned to building a balanced portfolio that doesn’t rely heavily on high-risk, high-volatility options like equities and crypto, but they’re also actively working towards picking the right mix of fixed-income instruments. This means expanding their outlook to move beyond conventional fixed deposits and assessing options like corporate bonds as well. This is evidenced by the fact that in 2022-23, India’s corporate bond issuances clocked a record high of Rs.8.2 trillion.  

These factors lay the context for why all eyes are trained on India’s corporate bond market. But why is now the best time for you to invest in corporate bonds? Let’s break it down.

Why is now the best time to invest in corporate bonds?

Substantial Yield

For the longest time, fixed income instruments and fixed deposits have been synonymous with each other. However, the equation is changing—as it rightfully should—because today, corporate bonds offer better returns than fixed deposits. 

In fact, even within the bond segment, corporate bonds outperform government bonds, offering 8%–12% yield on average (going up to 14%), as compared to the 5%–7% yield typically offered by government bonds. Also, as interest rates are high at present, corporate bond yields are also at their peak, making it a lucrative time to invest.

Lastly, with inflation standing at 4.87% in October 2023, adding corporate bonds to your portfolio is a great way to secure inflation-beating returns.

Easy Diversification

As a smart investor, diversifying and balancing your portfolio should be a top priority, with the goal being to maximize returns, without taking on unmanageable risk. 

Fixed-income instruments, while safer than many investment options, still carry risk. This includes credit risk, inflation risk, liquidity risk, event risk and more. Diversifying is crucial to temper this risk and maximize your corpus’ growth. Corporate bonds serve to achieve this critical goal. 

While fixed deposits seem like the obvious, low-risk option, they offer relatively lower returns too, as evidenced earlier. Corporate bonds, on the other hand, help you secure better yield, in exchange for a slightly higher risk exposure—subject to the bond’s credit rating, of course. As a result, they sit at a sweet spot where you’re not exposed to extremely high risk (as is the case when you invest in the equity market), yet you can count on significant, predictable returns. So, if you have a moderate risk appetite, consider diverting around 30% of your portfolio to debt instruments, including corporate bonds.

Read more: What Are The Risks Associated To Fixed Income Securities?

Positive Regulatory Moves

Another reason why corporate bonds make for a great investment now, is because of the regulatory measures that have been put in place in recent times. For example, in late 2022, SEBI (Securities Exchange Board of India) reduced the face value of listed (privately placed) debt securities from Rs.10 lakh to Rs.1 lakh to make retail participation easier. It also brought online bond platforms under its regulatory ambit and mandated that the end use of funds be made clear to boost transparency, and in turn help you invest confidently. 

#FixedIncomeMatters – Regulatory Stance on Bonds

More recently, as of mid-November 2023, RBI’s new regulatory measures pertaining to consumer loans are expected to boost corporate bond yields by a significant 5–15 basis points. Another great reason to invest now!

Read more: RBI’s Game-Changer: Big Boost For Corporate Bond Yields

Lower Additional Costs

Today, corporate bonds are not just easily accessible, but they can be a profitable choice, especially when compared to certain other debt investments. For instance, when you invest via online bond platforms, you can do so directly. This makes them a solid alternative to debt mutual funds. Also, when you opt for corporate bonds, you don’t have to worry about expense ratios and additional transaction charges eating into your returns.

Greater Versatility

With a fixed tenor ranging from a few months to a few years, corporate bonds can be used to strategically meet a wide range of financial goals, whether they’re short-term, mid-term or long-term in nature.

Furthermore, when you choose corporate bonds, you’re aware of the maturity date right at the beginning. This reduces uncertainty and aids in better planning for investors who prioritise stability. Additionally, as corporate bonds can be traded on the secondary market, they offer liquidity should you require access to funds.

For all risk appetites

Like fixed deposits, corporate bonds are also rated by agencies such as CRISIL, ICRA and CARE. As always, the higher the rating, the safer the corporate bond is deemed to be. These credit ratings help you determine if a corporate bond aligns with your risk appetite or not. So, whether your risk threshold is high, moderate, or low, you can assess corporate bonds based on their rating and make the right choice. 

Also, in the simplest terms, corporate bonds are a loan. Therefore, they appeal to a wider cross-section of investors unlike equities or crypto, which are typically suited only to those who have a high risk appetite. This, combined with the fact that there are many AAA+ rated corporate bonds to choose from, means you can secure good returns, without compromising on security.

Make the right move with Aspero

Many experts believe that the pandemic was an inflection point of sorts for corporate bonds, with investors turning to lower-risk avenues for greater stability during tough times. Now, three years later, the corporate bond market is undoubtedly thriving and is ripe for participation. With Aspero by your side, you can harness the power of this instrument today.

India’s premier fixed-income investment platform, Aspero is 100% SEBI-compliant, and offers you a wide range of debt instruments to choose from, with returns of up to 14%. Start your journey with just Rs.1000—no transaction fees and no commissions.