There are always two sides to a story. As someone who invested a bunch of money in bonds & FDs (Bank + company), I want to share my cautionary tale for others to take a lesson. Its a long story & may be I will write a detailed post on it later but writing a quick summary here for now. There is an upside to bonds but there is also an element of risk which cannot be ignored. Most times, this doesn’t get discussed enough.
Bonds / FDs helped me during a phase when I was jobless & needed regular income (I don’t have any loans so only had to manage my personal expenses & I live a fairly frugal lifestyle)… & everything went well considering I never had to touch my corpus . But I have also seen the other (dark) side… something else much more ‘sinister’ happened. And I did do my own research, analysed, checked credit ratings, attended roadshows, asked tough questions at investor meets etc before I invested so that wasn’t the problem. But no matter how much research you do, if balance sheets are fudged, if there is no good corporate governance, things will go wrong. And we just can’t trust credit rating agencies. DHFL, Srei, reliance capital , future enterprises, DSK are cautionary tales.
I am a secured bond holder & I am still waiting for my money stuck in Srei. From what I can see as an investor, as per the final approved resolution plan, I will lose 90% of my investment (principal amt). of c forget about interest due in the last 3 years. When it goes to NCLT, secured has no meaning. Trust me. There are a dozen court cases still playing out & Dilli abhi dur hai.
For those who are interested in the latest update on Srei + how IBC resolutions are happening , do check:
& then of c there was DHFL & Aadhar housing finance… (btw I attended the Aadhar cocktail party at Taj Mahal Palace in 2018 as an investor & somehow even now get visions of Titanic movie everytime i remember that.)
So anyway I had FDs + Bonds in DHFL (fairly large amt for a middle class person like me)… I got saved by whiskers. Did pre-mature withdrawals of FDs 5 months before it got into that mess. Those chaps at Bandra office tried their best to convince me & retain the money in FDs. They showed me plenty of fresh forms along with signed chqs of Rs1 crore amt & renewal forms. Thankfully I didn’t fall for their parlour tricks. I still get nightmares about losing that money.
I couldn’t do anything wrt the bonds (all secured of course) though. But thankfully Aadhar housing finance was acquired immediately by Blackstone & interest continued to roll in - Aadhar NCD is up for maturity later this yr. But the money in DHFL bonds was a different story - It went to NCLT for resolution in 2019, pandemic happened, then more delays. After 27 months, I got my money back- by sheer luck my investment was 199k (i got alloted less bonds in the second tranche (50% allotment) due to too many applications). Had it been even 201000/- (One bond =1000 Rs) & I had crossed the 200k threshold), I would have lost out a large chunk of my principal. The DHFL resolution laid out that only 200k was recoverable. There is a God somewhere & He has been very kind to me! Unsecured bond holders lost 64% while FD holders were strangely treated at par with secured bond holders & got back upto 200k each. There are tragic stories of many senior citizens losing their retirement savings.
Once bitten, twice shy. I still hold corporate bonds (I have exited almost all company FDs at maturity since then). When it comes to fresh investments I approach things a lot more differently today. Today one can have peace of mind by investing a certain portion of your money in bank FDs- Rs5L standalone FD per bank (in line with the DICGC insurance amt of 5 lakh, thank goodness they increased it to 5 L) & rinse repeat across multiple banks… Rate cycle is peaking, make hay & lock in at longer tenures. Bond interest rates are almost similar to bank rates right now. May be invest in RBI retail direct + RBI floating rate bonds etc. Ask yourself, if you need to take that extra risk before buying corporate bonds. Additionally, invest the rest in MFs/ equities + PPF/ NPS for long term.
There are a lot more factors at play here when investment decisions are taken. I am lucky everything turned out well for me, not everyone is as lucky.
Be extremely careful. Like Bhuvan pointed out on another thread, personal finance is extremely personal - you know your situation more than anyone else. Don’t copy just because it worked for someone else.