Bond Market: Why Retail Investors Shouldn't Ignore This Asset Class Explain

Bond Market: The Indian bond market has seen increased retail interest of late, mainly due to subdued stock market, monetary easing and heightened geopolitical uncertainties. As interest rate cuts become more likely, investors are locking in higher yields before they fall further. Experts point out that segments such as AA- and A-rated bonds have gained traction among retail participants as they offer a balanced mix of high yields and reasonable credit quality. More risk-averse investors prefer AA-rated bonds for stability, while those chasing higher yields examine select single-A papers after evaluating the fundamentals of the issuer. Even long-term government bonds (G-Secs) are finding renewed interest among retail investors, given the potential for capital appreciation in a falling rate environment. Experts emphasize that retail investors should hold bonds in their portfolio as they provide stable returns, help in capital preservation during times of stock market volatility, diversify one’s portfolio, reduce overall risk and also provide flexibility. “Corporate bonds have seen a massive, nearly 280 percent year-on-year growth in demand from retail investors, which has now generated ₹2,367 crore worth of deals in July 2025,” said Nikhil Aggarwal, founder and group CEO, Grip Invest. “Investors are looking for low-risk, low-volatility, fixed-income investment options that offer enhanced returns. Such risk-reward is achieved through investment-grade corporate bonds, and this trend has accelerated in 2025 due to an increase in volatility in the equity markets, combined with RBI rate cuts in the bank, leading to significant FD rate cuts in the bank. Bond investing explained Bonds are relatively safer than stocks as they give fixed returns. Investing in bonds of a government, corporation or other entity gives regular interest payments and the return of principal at maturity. A bond yield is the rate of return you earn from a bond based on its current market price. For example, if you buy a ₹1,000 bond with a ₹70 annual interest payment, the bond yield is 7 percent. But if the price of that bond has now fallen to ₹950, your ₹70 interest rate would mean your yield is now 7.37 percent. This explains why bonds and bond yields move in opposite directions. Why should bonds be an integral part of one’s portfolio? Bonds play a crucial role in diversifying an investment portfolio. They act as a counterbalance to equities, providing stability when markets become volatile. Vishal Goenka, co-founder of IndiaBonds.com, underlined that for individual investors, bonds bring predictability – fixed interest payouts, defined maturity and lower correlation with stock market swings. In India, Goenka said, as retail participation broadens, bonds are increasingly seen as more than just not a conservative option, but as a mediator of disciplined wealth creation. Additionally, with multiple categories – from government bonds to corporate bonds – investors can tailor their portfolios based on risk appetite and financial goals. Bonds help investors preserve capital, earn steady cash flow and diversify their investments. They also offer higher returns than traditional FDs. Now what should your bond investment strategy be? According to experts, the short-term covered bonds have become popular with investors amid the rate cut cycle. “Short-term bonds maturing within five years accounted for more than half of the new bond-securitized debt issued in May, up from one-third in April,” Aggarwal said. Goenka said a barbell strategy can work well in the rate cut environment – the combination of short-term high-yield corporate bonds with long-term government bonds. “Short-term (2–3 years) high-yield bonds offer superior current income and protection against reinvestment risk, while long-term G-Secs offer potential capital gains as interest rates fall,” Goenka said. “This dual approach puts investors at risk able to capture yield today and benefit from potential price appreciation tomorrow. Overall, this is a phase where being proactive, diversified and durable can help investors optimize returns in a softening rate cycle,” Goenka said. Read all market related news here Read more stories by Nishant Kumar Disclaimer: This story is for educational purposes only. The opinions and recommendations expressed are those of individual analysts or brokerage firms, not Not mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.