Secured corporate bonds offering 9-11% return, but are they superior to FDs? Top wealth expert explains

With the recent increase in interest rates, corporate bonds are providing significantly higher rates compared to fixed deposits. For instance, while corporate bonds offering a rate of 9-11 per cent, fixed deposits are offering an average interest rate of 6-7 per cent for a tenure of one to three years. While the higher returns are appealing, it's crucial to recognize that corporate bonds carry more risk than fixed deposits. These bonds entail both credit and interest risk. Therefore, it is important to carefully assess the credit quality of the issuer before investing or consider investing in them through a diversified debt fund. Additionally, it is advisable to avoid placing all your funds in bonds or fixed deposits from a single issuer. 

Ajinkya Kulkarni, Co-Founder and CEO of Wint Wealth, provides an explanation on the higher returns offered by corporate bonds compared to fixed deposits, along with key considerations for investors. Wint Wealth is a fintech that simplifies investments in fixed-income products for retail and HNI investors. It is backed by Nithin Kamath (Zerodha), Lalit Keshre (Groww), Nitin Gupta (PayU), Kunal Shah (CRED), among others. 

BT: What are the potential returns offered by corporate bonds? Which specific bonds can be considered for investments that yield a return of 10 percent or more?

AK: Before investing in corporate bonds, investors must understand the asset class, inherent risks, and the upside. Conventionally, long-term equity investments offer high returns, but, are volatile in nature. Comparatively, bank fixed deposits (FDs) provide assured fixed returns but do not beat retail inflation. Corporate bonds have a lower risk profile (compared to the equity market) and pre-decided returns (better than FDs). 

Wint Wealth carefully curates senior secured bonds with 9-11 per cent per annum (p.a.) fixed returns with a maturity tenure of 1-3 years. Currently, we have bonds from Protium Finance ARP'23 (10.25 per cent XIRR), and InCred Feb'23 (10 per cent XIRR) available on our platform. We continuously bring new bonds and most assets are sold out in 1-2 days. To ensure the safety of investments, our due diligence goes far beyond credit ratings. So far, Wint Wealth has empowered 45,000+ investors to invest in corporate bonds worth close to Rs 1000 crore.  

BT: Why invest in bonds when one can invest through short-term mutual funds or cash in on high FD rates of Small Finance Banks? 

AK: The 3-5 year-long FD by non-senior citizens in small finance banks fetches 8-9% p.a. average returns. At 10%+ p.a. interest rates, corporate bonds reward them handsomely for their risk premium. 

In the last Union Budget, the indexation benefits on debt mutual funds held beyond three years were withdrawn. Now, investors have no added tax advantage to go for these mutual funds over corporate bonds. Debt mutual funds also reduce the choice of underlying bonds and expected returns. These funds primarily invest in Government securities (G-Secs), AAA, and AA-rated bonds, along with sectoral exposure limits. Thus, investors can not invest in high-interest-yielding bonds. Moreover, if a corporate bond is held till maturity, investors receive pre-decided returns. Returns of debt mutual funds show great deviations because of interest rate movements, defaults, and macro-environment. Any buying and selling by the fund manager due to these factors affect investors' returns. 

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BT: There has been a flurry of bond platforms recently. Why is it so and how to choose which is the right one? 

AK: The three essential tailwinds for the industry are:- 1) growing adoption of technology by DIY investors, 2) attractive interest rates on fixed-income instruments, and 3) progressive regulations by the Securities and Exchange Board of India (SEBI) that strengthen investors’ confidence. What makes Wint Wealth unique is our superior curation of senior secured bonds and our efforts to educate the investors about the underlying risks. We firmly believe that unsecured bonds are not for retail and HNI investors, as they do not have the expertise to evaluate the underlying risks. Thus, we never sell such bonds through our platform.

BT: Is there any difference in bond prices if one buys from your exchange or directly through the stock exchange? 

AK: Fundamentally, there is no price difference between the same bonds we sold or on the exchanges. However, due to limited issue size and liquidity, the bonds that we sell are not available in abundance at the bourses. The stock exchanges also do not undertake any additional measures for selection and risk evaluation. So, if retail and HNI investors decide to buy from the exchanges, they may not have the skills to select and evaluate the right bonds for themselves. 

BT: RBI retail platform also allows bond buying for retail investors. How is it different from what you offer? 

AK: The RBI retail direct platform only facilitates buying and selling of sovereign-backed G-Secs. While these are the safest and the most liquid bonds, the yields are far lower than bank FDs. We sell corporate bonds which offer 9-11 per cent p.a. Interest, with measured risks. The minimum investment ticket size for G-Sec is Rs 10,000. On the other hand, privately placed and listed bonds need a minimum investment of Rs 1 lakh and Rs 1,000 respectively.