After a spate of reforms, Indian bond market has evolved significantly. The recent decision of JP Morgan to include India’s sovereign bonds in its emerging markets index would give further impetus to an already expanding Indian bond market.
This has made corporate and sovereign bonds a vital constituent of investors’ portfolio, explains Vishal Goenka, Co-founder of Indiabonds.com in an email interaction with MintGenie.
Additionally, he sheds light on the importance of fixed income instruments, particularly for conservative investors. He also debunks the common philosophhy of determining asset allocation in tune with the age bracket.
What impact do you see of JP Morgan’s plan to add India’s sovereign bonds to emerging markets index from next year?
The long-awaited inclusion of India in global indices is a testament to the strength of our economy, making it attractive to global fixed income investors. We are already witnessing a growing interest in bonds from domestic non-institutional investors and the targeted international investments will further enhance the depth and strength of our fixed income markets.
This development has the potential to generate increased liquidity and demand for Indian sovereign bonds, consequently leading to lower yields and reduced borrowing costs for the Indian government. This in turn should also reduce corporate borrowing rates in the future. It represents a positive step that can bolster India's position in the global financial landscape.
Can you also shed some light on the bond market in India? Do you think it is headed for maturity in the near-term future?
The bond market in India has been steadily evolving over the years, much like where equity markets were a decade ago and total outstanding bond market stands at US$2.44 trillion (SEBI, CCIL). With various reforms and regulatory changes, it has become more transparent and accessible.
The introduction of electronic bidding platforms (EBP) for institutions and the rise of online bond trading platforms (OBPPs) has also enhanced market efficiency. Although the Indian bond market has made significant progress, there is still room for growth in terms of liquidity especially in the corporate bond market. A vibrant bond market offers a reliable source to raise funds, reducing dependence on banks.
How important do you think are the fixed income instruments in helping investors meet their financial goals?
Fixed income instruments play a crucial role in helping investors meet their financial goals, providing stability and income. They are particularly important for conservative investors who prioritize capital preservation and a predictable income stream. Bonds, including government and corporate bonds, offer regular interest payments and are relatively less volatile compared to equities. They can be a cornerstone in a diversified investment portfolio, helping to balance risk and achieve long-term financial objectives.
It is often said that investors should invest heavily in equity at a young age and gradually tilt their portfolio in favour of debt instruments as the age advances. Do you think there is a need to relook at this generic advice?
There is no universal approach to investment that fits everyone irrespective of their age. Some investors may maintain a high risk tolerance even as they grow older, whereas others may prefer a conservative approach right from the beginning. Therefore, it is essential to customize investment strategies to match individual circumstances and periodically assess and adjust them as necessary.
That said, regardless of age, portfolio diversification is paramount in this era of diverse new-age investment options. Incorporating bonds, alongside assets like equity and cryptocurrency, provides the portfolio with the necessary buffer against volatility.
Why should conservative investors explore an investment in corporate bonds instead of fixed deposits and sovereign bonds?
Conservative investors should consider exploring corporate bonds as an alternative to fixed deposits (FDs) and sovereign bonds for several compelling reasons. In addition to their greater liquidity and absence of penalty clauses, corporate bonds typically offer higher yields compared to FDs, potentially yielding superior returns on investments.
Furthermore, they provide a wider range of maturities and credit ratings, enabling investors to select bonds that align with their risk tolerance and investment horizon. Diversifying into corporate bonds can also help in spreading risk across various issuers and sectors, thereby reducing concentration risk.
Given that we are currently close to the peak of the interest rate cycle, bond investors may also have the opportunity to realize capital gains in bonds.
How does the bond directory (by IndiaBonds) help investors who are keen to invest in bonds?
The bond directory offered by IndiaBonds.com serves as a valuable resource for investors who have an interest in bonds. It can be likened to a bibliography or the yellow pages of bonds, providing extensive details on the entire Universe of outstanding bonds in the country.
Can you also tell us how the bond yield calculator helps investors in assessing their returns and taking a calculated decision?
Traditionally investors have had to rely on advisors or make independent cashflow spreadsheets for each bond to calculate its yield at a certain price. The bond yield calculator is a powerful tool that aids investors in evaluating the potential returns on their bond investments across 10,000+ bonds.
Key parameters such as the bond's coupon rate, settlement and maturity date are already in-built; you can choose the bond of their choice and compute the yield to maturity (YTM) or price at any point of time in seconds.