Is it safe to invest in Bonds anymore?


#1

Considering the recent negative news surrounding ILFS, DHFL bonds, do you think it is safe to invest in bonds?


#2

Its pretty darn safe to invest in Government securities!


#3

Understandable question given the rising risks. I’ll answer this from a credit rating perspective, because I am assuming that you are asking if investing in AAA rated bonds is safe.

The thing with credit rating is that there is an inherent conflict of interest. The company which is issuing a bond pays the credit rating agency to ascertain the credit worthiness and assign a credit rating. Now, it also has to contend with the expectation that it is supposed to keep watch of the credit quality and downgrade the bond in case the company loses ability to service payments.

Meaning it basically has to tell the company which paid it money that they are useless. No wonder, these agencies have been caught with their pants down. To make things works NBFCs are a bit of a blackbox, IL&FS more so. So unless you are some financial wizard, it is very hard to fundamentally analyze the nature of the companies.

Now with that in mind should you stay away from bonds given the risk? Of course not, you can’t let a bad apple ruin the entire basket. Debt is an essential component of a diversified portfolio. Becasue it provides cushion and stability to compliment the high risk and volatility in equities.

Now how do you relatively make safe debt investments.

  1. Invest in G-Secs. Here’s how much they are yielding
  2. Now if you want to wring a little more yield from your debt component of your portfolio, you can invest in PSU bonds. These bonds pay a little higher rates.
  3. Invest in good debt mutual funds helmed by fund managers with solid track records. Again, if you don’t want to take risk here, you can stick to select banking and PSU debt funds.

Hope this answers your query.


#4

I think that it is safe to invest in these bonds. I don’t see any harm in them. You should not always listen to people’s views. You should do the research for yourself and then make the decisions for yourself. I don’t want to sound rude but this is the pathway to success.