Retail investors can spot bargains in bond game

India’s debt market, which trades in fixed-income bonds, is on the cusp of a change that will see such securities being traded more easily and freely, the way equity shares are traded through electronic listing and convenient storage.

India’s debt market, which trades in fixed-income bonds, is on the cusp of a change that will see such securities being traded more easily and freely, the way equity shares are traded through electronic listing and convenient storage.

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For retail investors this offers an advantage. By spotting the right securities that bear higher interest-rate yields, they can get higher returns, but they must be careful of the ratings for safety, say investment experts. With proper cherry-picking in bonds, the returns can outstrip fixed-deposits.

“Bonds provide much more value for retail investors when compared with other fixed income options like FDs (fixed deposits) and RDs (recurring deposits), provided one invests into well-rated bonds, as we are in a falling interest rate cycle,” said Hiren Dhakan, associate fund manager, Bonanza Portfolio Ltd.

Moreover, most discerning individuals and investors have now recognised the importance of this segment and are striving to give it the recognition it deserves.

“There is a huge interest of FIIs (foreign institutional investors) in the debt segment in India,” said Jayesh Mehta, managing director, Global Markets Group, Bank of America.

Experts say that both equity and debt market look promising.

“From here, we are looking for at least 100-125 basis points of rate cuts (1 to 1.25 percentage points) over the next 2-3 quarters, which would be very beneficial for long-term bond investors as bond price would move northwards when interest rates are cut,” added Dhakan. “And even if one doesn’t book capital gains and holds on till maturity, bonds are currently available at attractive yields.”

The importance of this segment is that in a developing economy like India, the debt market has a critical role to play in filling the large amount of capital requirements. Funds raised through the issuance of corporate bonds for the 2012-13 period stood at over R360,000 crore from 2,489 issues, according to the regulator SEBI.