Bonds Vs Fixed Deposits: 50% more returns on bonds than FDs! Good opportunity to earn

Bonds Vs Fixed Deposits: People usually consider investment options after getting a job with a good salary. If you are also thinking of investing to get better returns on your savings, then before embarking on this journey, you should understand some very important things about investment options. First, how much risk-taking capacity do you have for the option in which you are thinking of investing and second, the investment option should remain stable and profitable. A good option for such investment is bonds which ensure stability of investment and stable returns.

The bond market is generally less volatile than the stock market and is more suitable for investors with a low risk appetite and stable returns on investment. Bonds offer stable returns on investment for investors with low to moderate risk appetite. Bonds are a popular investment option for people who can take limited risk or want a steady stream of income. Bonds rated A or above offer predictable returns, fixed repayment plans and default rates have generally been less than 1%.

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Bonds with AA rating have emerged as a better investment option. Investment in such bonds gives better returns than fixed deposits i.e. FDs. These bonds allow investors to earn 30% to 50% more returns than FDs. Bonds with AA rating also challenge the financial knowledge of many people, as they do not give this debt instrument a high place in the category of investment options. Investors can feel secure about their financial future by choosing bonds with AA rating.

How to identify safe bonds for investment?

The easiest way to measure the risk of a bond is to look at the credit rating given to it by credit rating agencies registered with SEBI such as CRISIL, ICRA and CARE. Regarding the rating of bonds and the returns on them, Nikhil Agarwal, Founder and CEO of Grip Invest, explains how bonds with AA rating can give higher returns than FDs. Nikhil Agarwal says that the return on a bond is linked to its rating, which means that bonds with better ratings generally give lower returns. In other words, investors can expect lower returns on investments in low risk i.e. better rated bonds. For example, bonds with AA rating generally give 9% to 10% returns, while bonds with A rating can give returns of 10% to 11%. Bonds with BBB rating can give returns of 12% to 14%. Even on investments in bonds with AA rating, investors can get 30% to 50% more returns than fixed deposits (FDs). Due to higher returns, bonds are emerging as a better investment option among investors.

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It is very important to set a goal before starting the investment journey. However, the goal can be short term or long term according to the need of the investor. Once the goal is set in the investment journey, the investor can achieve it on time with his better financial planning. Regarding how bonds can help in achieving short term goals, the founder of Grip Invest says that there are many bonds with different time frames i.e. tenures available for investment in the bond market. Currently, bonds of 3 to 6 months duration of big, reputed companies are available. Investors can invest money in these bonds to achieve their short term goals.

Governments or companies bring bonds to raise funds. Nikhil Agarwal explains that government bonds, corporate bonds and many other types of bonds are brought in the market from time to time for investment. Apart from this, there are also secondary markets for bonds. The secondary bond market is the market where investors can buy and sell bonds according to their needs. He says that investors can earn 50% more returns than FDs on investing in bonds through the secondary bond market under a special strategy.

How to assess your risk taking ability

The CEO of Grip Invest says that an investor’s risk-taking ability depends on many things such as age, income, debt or liability, job, savings, thinking. To know about this, many types of tests are available today, including psychometric tests taken online, which can help investors understand their level of risk-taking ability.

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He further said that it is very important to keep in mind one’s risk-taking ability before investing. Investing while understanding the risk maintains stability and the investor also does not get worried. Investment is more profitable when an investor avoids taking hasty decisions. For example, exiting a stock due to short-term volatility.
Aggarwal said that bonds are the right option for investors who have limited risk-taking capacity. He says that the default rates of bonds with A or better rating have been less than 1 percent. Unlike the stock market, the return on investment in bonds is predictable, in this option the repayment plans are fixed. Also, investors do not have to face instability in this.

Regarding the performance of bonds as a fixed income asset class in the last few years, Agarwal said that in the last 2 years, due to inflation rate being higher than the target level set by RBI, there has been an overall increase in interest rates. The effect of the increase in interest rates has been seen in all fixed income instruments, from fixed deposits (FDs) to bonds. In general, this increase has been up to about 200 basis points, for example, during this period the interest rate on FD has increased from 4.5% to 6.5%. Due to which investors have been able to get higher returns through low-risk options. Due to better returns, investors’ interest in such fixed income instruments has increased. He said that in the last 24 months, the number of people investing in bonds through online bond platform (OBPP) providers has increased by 600 percent. Let us tell you that apart from OBPP, other options like Zerodha are also available for online investment in bonds.

(Article : Mithilesh Jha)