By Abhijit Roy
Equity and debt instruments have remained the two key investment types for retail investors across different generations, including millennials. While equity instruments typically offer the potential for high returns, they are linked to the stock market, and hence, returns are subject to market risk. On the other hand, debt instruments such as FDs and RDs offer significantly lower but fixed returns.
The context for strategic investing
Until a couple of decades back, retail investors in India, especially mid-income families, opted for a debt-heavy portfolio with some amount of equity exposure; it paved the path to financial security in what was a slow-growing economy. However, this is no longer the case. A shift in financial goals – wealth is the top life goal for 80% of millennials as per a Morgan Stanley report, incomes and lifestyles defined by the world’s fastest-growing economy, and high levels of uncertainty experienced during the pandemic, have made millennials strategic investors.
They are leveraging the power of digital platforms to make financial decisions that deliver on their goals despite a volatile and unpredictable global economy. More than 81% of digital investors (millennials make up the largest category of digital-first investors), started their investment journey post the pandemic, as confirmed by a Benori Knowledge survey. This highlights the fact that millennials have increasingly begun to attach to financial security.
The diversification opportunity
As millennials look to build a balanced portfolio that can deliver during periods of high growth as well as highly volatile phases, it becomes important to add low-risk, medium-return instruments, especially for short, and mid-term goals. Such an approach also becomes critical to building a savings-based corpus for contingency planning.
This calls for a shift in habits; investors must look beyond mutual funds for instruments that can be researched, purchased, and managed online. Secondly, they must acknowledge that current inflation rates outpace the returns offered by traditional debt-based, fixed-income instruments such as FDs and RDs.
Bonds and debentures, debt-based instruments offering fixed returns, present an interesting opportunity. They offer higher returns than FDs and RDs, are not linked to the market, demand minimum investment as low as Rs.10000, and offer the choice of investment duration. Today, more than 100+ bonds and debentures are available for review, comparison, and purchase for investors looking to diversify their portfolios without compromising on the convenience of digital personal finance platforms.
Investing in bonds and debentures
As per the industry estimates, the Indian bond market is valued at USD 1,2 trillion Gsec, with USD 800 billion in corporate bonds growing at 12% CAGR. Such market transformation presents a high opportunity for all digitally-savvy investors, especially millennials who are digital natives; today, there are a growing number of digital investment platforms that offer the convenience typically associated with online mutual fund platforms, but for debt-focused products. They offer investors complete authority in managing their bonds, and debentures, which is critical in today’s highly fast-paced, and agile environment.
However, to gain optimum returns from bonds and debentures, it is essential that millennials maintain a steady momentum. Discipline is the key to a well-performing portfolio, all the more so in the case of non-market linked instruments with fixed returns. Hence, ensuring selected bonds’ tenure commitment matches the goal timeline is critical. Similarly, updating the allocation basis of the age rule (100-age) is can serve as a good guiding principle. For instance, a 30-year-old can choose to have 70% exposure to equity, and 30% to debt. Lastly, millennials must consider that bonds typically yield higher returns during market volatility, making them effective hedging instruments.
In summary, investing in bonds and debentures can be a rewarding opportunity for millennials seeking access to alternative instruments. They can help them diversify, and get closer to their savings, investment, and wealth creation goals in a relatively safe, and convenient manner.
(The author is the CEO and Co-Founder, GoldenPi. Views are personal)