When discussing investments, bonds often don’t grab headlines compared to high-yield options, which seem more glamorous. However, recent developments show bonds can be quite rewarding.
The Reserve Bank of India recently set the redemption price for the Sovereign Gold Bond (SGB) 2017–18 Series III at ₹12,567 per gram, representing an incredible 338% return over eight years.*
This highlights the power of fixed income delivering steady growth through reliability and discipline. It’s a strong reminder that bonds aren’t boring; they can offer both stability and impressive returns when selected carefully.
In this blog, we’ll explain why bonds are beneficial for your portfolio and how they help maintain stability.
Why Bonds Are Not Boring?
Bonds are often perceived as boring or only suitable for conservative investors. In fact, they serve as a strong foundation for your portfolio, offering protection during volatility and providing steady returns.
Here’s why you should consider investing in bonds:
Steady Income: Regular Interest Payments provide a predictable return stream
Capital Protection: High-rated issuers ensure the safety of your principal amount
High Yields: Corporate Bonds offer high yields up to 13%, compared to traditional fixed deposits.
Diversification: Bonds help manage market volatility and reduce portfolio risk.
Corporate Bonds in India: The Rising Stars in Investor Portfolio
Corporate Bonds are debt instruments issued by companies to raise funds. They offer fixed payments over the tenure and receive their principal back at maturity.
While Sovereign Gold Bonds are government-issued, corporate bonds are issued by companies to raise funds.
Corporate bonds offer higher returns, coupled with slightly higher risk, making them suitable for investors looking for higher yields than fixed deposits (FDs) but less volatility than stocks.
Benefits of Investing in Corporate Bonds
1. Higher Yield Potential
Corporate bonds generally offer better returns than government bonds or FDs, compensating for moderate credit risk.
2. Regular, Predictable Income
Coupons (interest) are paid on schedule, making them ideal for investors seeking stable monthly, semiannual, or quarterly income.
3. Portfolio Diversification
Adding corporate bonds reduces overall portfolio volatility and helps balance market swings.
4. Capital Preservation
High-rated corporate bonds are issued by financially stable companies, allowing you to safeguard your capital while earning reliable income.
5. Liquidity & Flexibility
Many bonds can be traded before maturity, giving investors flexibility to rebalance or exit in case of an emergency.
Types of Corporate Bonds
By Credit Quality
- Investment-Grade Bonds: Safer, lower yields (AAA, AA).
- High-Yield Bonds: Higher returns with higher risk.
By Maturity
- Short-Term (1-3 years): lower duration risk.
- Medium-Term (3-5 years): balanced risk-reward.
- Long-Term (5+ years): higher yield potential.
By Interest Structure
- Fixed-Rate Bonds: Stable interest payout.
- Floating-Rate Bonds: Coupon adjusts with market rates.
- Zero-Coupon Bonds: Sold at a discount, redeemed at face value.
By Security
- Secured Bonds: Backed by company assets.
- Unsecured Bonds: No collateral; higher yield to compensate for the risk.
By Special Features
- Callable: The Company can redeem early, generally on the specified call date.
- Puttable: The Investor can demand an early exit.
- Government Guaranteed: The Government guarantees the payment of interest and principal in the event of default.
Each type has a unique purpose, from income generation to diversification or higher yields
Why Corporate Bonds Belong in Every Portfolio?
Corporate bonds strike a perfect middle ground: higher yields than FDs and lower volatility than equities.
For Indian investors, they’re becoming a preferred choice for:
- Generating regular income,
- Diversifying beyond equities and gold, and
- Achieving stable, inflation-beating returns.
As India’s bond market grows and accessibility improves through Online Bond Platform Providers (OBPPs), now is the right time to explore this dynamic asset class.
Conclusion
The Sovereign Gold Bond redemption story reminds us that even the most “boring” investments can turn into brilliant performers.
Similarly, corporate bonds are becoming a strong option in modern investment portfolios due to their combination of safety, income, and attractive yields.
Disclaimer
Investments in debt securities/municipal debt securities/ securitized debt instruments are subject to risks, including delay and/ or default in payment. Read all the offer-related documents carefully.
FAQs
1. What are corporate bonds, and how do they work?
Corporate bonds are debt instruments issued by companies to raise funds from investors. In return, the company promises to pay regular interest (coupon payments) and return the principal amount on maturity.
Corporate bonds in India are gaining popularity because they offer higher returns than fixed deposits (FDs) while maintaining predictable income and moderate risk.
2. Are corporate bonds a safe investment in India?
]Safety depends on the issuer’s creditworthiness, the issuer’s financial health, the bond’s structure, etc. High-rated corporate Bonds are generally considered low-risk fixed-income investments.
3. What is the difference between corporate bonds and government bonds?
Corporate bonds are issued by companies, whereas bonds issued by the government are called government bonds.
Government bonds are safe and low-risk investments, in contrast to corporate bonds, which carry risk but also offer high yields of up to 13%.
4. Why should I include corporate bonds in my investment portfolio?
Including corporate bonds helps create a stable and diversified portfolio. They provide:
- Steady income through regular coupon payments
- Capital preservation with high-rated issuers
- Attractive returns compared to FDs or savings accounts
In today’s uncertain markets, corporate bonds strike the perfect balance between safety and performance, making them a wise choice for long-term wealth creation.
* Source: Financial Express Report
