The Economic Times Markets' "Smart Talk" interview series turns to India's bond market, where Devang Shah discusses where the best fixed-income opportunities lie and confronts the perception that bonds in India are boring, low-return investments. That framing resonates in a market where households have traditionally held the largest share of their financial savings in bank deposits, with direct bond ownership remaining far less common.

The conversation comes as the Reserve Bank of India (RBI) remains watchful of risks stemming from geopolitics, crude oil prices and global monetary policy developments, and with the RBI repo rate at 5.25%. The repo rate is the rate at which the RBI lends to banks, and changes in it transmit to deposit rates, lending rates and bond yields across the economy, which is why policy decisions feed directly into fixed-income returns. The Monetary Policy Committee meets roughly every two months, keeping its rate calls a recurring checkpoint for bond investors. Structural demand has also deepened: India's inclusion in JPMorgan's Government Bond Index-Emerging Markets, which began in June 2024, opened local-currency government bonds to index-tracking foreign investors.

The interview opens by asking Shah for his take on the Monetary Policy Committee (MPC) policy meeting outcome and whether he sees interest rates going higher or lower in the near term. It then probes whether, with the repo rate at 5.25%, investors are still in an environment where they can lock in attractive yields — or whether the best part of the rate cycle has already passed. The timing question is not academic: a bond held to maturity locks in the yield at purchase, and because prices move inversely to yields, the entry point shapes what a buy-and-hold investor earns. A related question asks whether it is better to lock in a 7% yield on a high-quality bond today or wait for potentially higher yields should inflation or oil prices push rates up.

On portfolio construction, the discussion examines how ₹1 crore might be deployed in fixed income over a three-year horizon, and how investors should divide their fixed-income allocation between government bonds, AAA corporate bonds, credit opportunities and money-market instruments. Each layer carries a distinct trade-off: government securities carry sovereign backing; AAA is the highest credit rating, and corporate paper typically offers a spread over comparable government securities that widens as ratings fall; credit-oriented strategies accept lower-rated issuers for extra yield; and money-market instruments — such as treasury bills, commercial paper and certificates of deposit — mature within a year. The interview also explores whether a bond fund makes more sense than buying individual bonds — and when direct bond ownership has an advantage. Direct access has broadened in recent years: the RBI's Retail Direct scheme, launched in 2021, lets individuals buy government securities, while SEBI-regulated online bond platforms now offer corporate bonds in smaller lots. It closes with the question of what the biggest misconception about bonds in India is today: that they are boring, low-return investments.

Source: Economic Times Markets