Synopsis: Experts advise Indian investors to consider bond investments following SEBI's move to reduce debt securities' face value, making bonds more appealing. With expectations of interest rate reversal, bonds offer higher returns than fixed deposits with lower risk than equities, ideal for balanced portfolios. Careful consideration of tax implications is advised.
SEBI's decision to decrease the face value of debt securities from Rs.1 lakh to Rs.10,000 is seen by experts as a significant move that makes bonds more appealing to retail investors. With this adjustment, bonds become more accessible, particularly at a time when market dynamics suggest a potential shift in interest rates. Retail investors in India are advised to consider incorporating bond investments alongside their equity holdings.
The reduction in face value makes corporate bonds more attractive to retail investors and broadens their accessibility. This move could potentially increase participation from non-institutional investors in the corporate bond market. Analysts like Pravesh Gour anticipate a positive feedback loop, with more retail investors entering the bond market due to the lower investment threshold, leading to increased bond issuances and heightened trading activity in secondary markets.
Pravesh Gour commended SEBI's decision, noting its role in empowering small investors to engage in bond purchases. Shweta Rajani, head of mutual funds at Anand Rathi Wealth, predicts that the reduced face value will lower debenture prices, enticing retail investors to explore this investment avenue further. This exploration could enhance market liquidity, improve price efficiency, and potentially narrow the spread between government securities and corporate bonds.
Vikrant Mehta, head of fixed income at ITI Mutual Fund, believes that SEBI's move accelerates the democratization of corporate bond investments, making such products more appealing and accessible to retail investors. Mehta highlights the potential benefits for bond issuers, who could broaden their investor base with varying outlooks and mindsets.
Experts emphasize the importance of asset allocation for long-term wealth creation, advocating for fixed-income investments as a component of a balanced portfolio. Bonds offer relatively higher returns than fixed deposits with lower risk compared to equities. Arvinder Singh Nanda, senior vice-president of Master Capital Service, notes that easier access to bonds allows retail investors to integrate them seamlessly into their portfolios, benefiting from consistent income and reduced volatility.
Given the current interest rate environment, bond investments are particularly attractive, with potential for interest income and capital gains over the next 12-18 months as interest rates are expected to decline. However, Shweta Rajani cautions that corporate bonds carry single-issue risk and advises investors to consider them only if the yield advantage compensates for this risk and tax inefficiency.
Rajani suggests that investors in tax brackets higher than 10% should evaluate the tax implications when comparing corporate bonds to alternatives like arbitrage funds or multi-asset funds. Bonds offering double-digit returns may be more suitable for investors in the 10% tax bracket or lower.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies. We advise investors to check with certified experts before making any investment decisions.
Related Questions
1. Why should Indian investors consider bond investments?
Experts suggest that Indian investors should consider bond investments due to SEBI's move to reduce debt securities' face value, making bonds more attractive and accessible. Bonds offer higher returns than fixed deposits with lower risk, suitable for balanced portfolios.
2. What factors contribute to the attractiveness of bonds for Indian investors?
Bonds offer higher returns than fixed deposits and lower risk than equities, making them ideal for balanced portfolios. SEBI's recent move to reduce the face value of debt securities further enhances the attractiveness of bond investments for Indian investors.
3. How does the current market environment impact bond investments?
With expectations of an interest rate reversal, bond investments become more appealing for Indian investors. Bonds offer potential for higher returns compared to fixed deposits, with lower risk than equities, making them an attractive option in the current market environment.
4. What should Indian investors consider before investing in bonds?
Before investing in bonds, Indian investors should carefully consider factors such as tax implications and single-issue risk associated with corporate bonds. Despite the attractiveness of bond investments, thorough evaluation is necessary to make informed investment decisions.
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