Only seasoned investors should venture into corporate bonds rated below AA
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar cautioned that offers of high return with low risk are often misleading. He said direct bond investing suits those who can analyse credit risk, and suggested limiting corporate bonds to 10–20% of the fixed income portfolio.
What Abhishek Kumar said
Should I trust a corporate bond pitched as high return with low risk?
I suggest avoiding such offers. A claim of high return with low risk is often misleading, because higher returns usually carry a greater risk of volatility. When a bond is sold to you as offering both at once, treat that as a reason for caution rather than a reason to invest.
Who should invest directly in corporate bonds?
Direct investing in corporate bonds suits only a limited set of investors: those who study the bond market carefully and are comfortable analysing credit risk on their own. If you are not prepared to assess whether an issuer can repay, buying individual corporate bonds directly is not the right fit for you.
How much of my fixed income portfolio should be in corporate bonds?
I suggest starting with a moderate allocation of 10 to 20 per cent of your fixed income portfolio to corporate bonds. Keep the rest diversified among safer instruments such as government bonds and fixed deposits, so that only a limited part of your fixed income money carries corporate credit risk.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on saving and deposits
The article looks at retail interest in lower-rated corporate bonds sold through online bond platforms. It explains credit, interest rate and liquidity risk, and suggests starting with highly rated, short-tenure bonds, spreading money across issuers, laddering maturities and checking issuer financials beyond the rating.
Publisher source
Only seasoned investors should venture into corporate bonds rated below AA