Retail investors are waking up to bonds—here's why it matters, says Vineet Agarwal

Time of India

5 days ago

For decades, bonds were largely the domain of institutional investors and high-net-worth individuals, while retail investors stuck to traditional savings options like fixed deposits or insurance-linked plans. But that's changing—and fast.
According to
Vineet Agarwal
, Co-Founder of Jiraaf, a growing number of retail investors are now embracing fixed
income
as a serious investment avenue.
In a conversation on ETMarkets Livestream, Agarwal explains why this shift matters, how young professionals and single-income families can benefit, and why simplifying your portfolio with high-quality bonds could be the smartest move you make. Edited Excerpts –
Kshitij Anand: You could say for young professionals, how can
corporate bonds
help in building an emergency fund more efficiently than a traditional
savings account
?
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Vineet Agarwal:
So, again, the traditional concept of having an emergency fund is to maintain at least four to six months of your expenses in liquid form. Traditionally, this
liquidity
was kept in a savings account, either in the form of savings or fixed deposits (FDs).
Now, people have started realising that the returns from fixed deposits are subpar—you're not even beating inflation—and the money lying in an FD loses value with every passing year. What smart people have now started doing, which wealthy individuals and large family offices have been doing for years, is shifting to AAA-rated or government bonds. These are now available at around 7% to 8–8.5%, compared to an FD, which gives you maybe 5% to 6%.
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Retail investors are waking up to bonds—here's why it matters, says Vineet Agarwal
Bonds are gaining traction among retail investors in India. Vineet Agarwal of Jiraaf highlights the shift towards fixed income. He suggests young professionals use bonds for emergency funds. Single-income families can generate secondary income through bonds. Agarwal advises against mixing insurance with investment. Bond laddering is a simple yet powerful investment strategy.
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So, when you build your emergency corpus with AAA or government bonds and get a 7.5% to 8% return, that extra 2% might not seem like much initially. But if you calculate it—2% on a 5% return is actually a 40% higher return. So, if earlier you were getting 5–5.5% from your FD and now you're getting 7.5%, that extra 2% is a significant boost.
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Just imagine earning a 40% higher return on your emergency fund if you hold it for 10, 15, or 20 years—the compounding effect of that extra 1.5–2% delta becomes very significant. And these bonds are liquid too, so you can sell and access your money whenever you need it.
So, for young professionals, my recommendation would be: keep some money in FDs, but don't park your entire emergency corpus there. Allocate a portion to these higher-yielding, very safe, AAA-rated bonds. That 2% delta can create meaningful wealth due to the
power of compounding
.
Kshitij Anand: And now that we've talked about young professionals, what is your advice to single-income families looking to generate a predictable secondary income using bonds?
Vineet Agarwal:
This becomes extremely important, especially in a country like ours. Barring a few metros, the majority of households still have a single income—typically, the male is the primary earning member. And often there are two, sometimes even three kids in the family.
Fixed income becomes very powerful in such scenarios. Why? Because you have an opportunity today to park your surplus in fixed income bonds that offer, on average, around 12% returns. This can generate an additional income stream for the family—almost like having a second earning member.
A lot of your household expenses can be easily managed through this additional income from fixed-income assets, particularly bonds. For such families, I strongly recommend—and this is something I also personally practice—that you build a good corpus and allocate a portion of your monthly surplus into fixed-income asset classes.
Don't allocate everything into equities, especially when it comes to your short-term goals—like your child's school fees (which you may need to pay annually), purchases for the household, or family vacations. These goals can be funded through fixed-income investments that are not linked to market volatility. They are stable—you know exactly when and how much you'll receive.
So, fixed-income instruments can form a very healthy part of your portfolio to meet these predictable, short-term financial requirements.
Kshitij Anand: What common mistakes do investors make with products like ULIPs (Unit Linked Insurance Plans) or endowment plans? And how does fixed income solve these problems, which were quite common in the past as well?
Vineet Agarwal:
So, again, as a country, for the last 40–50 years, almost everyone has had some form of insurance policy—either an endowment or a ULIP. Insurance is very, very good as long as it serves the purpose of insuring.
What happened over time is that, due to innovation, insurance gradually became an investment product—which, I believe, should not happen. A person should definitely have medical insurance for family needs and a term insurance policy so that, in case of the demise of the earning member, the family is protected. But investment should not be mixed with insurance.
All the endowment or ULIP plans in our country give, at best, a 5% to 6% return, which does not serve the purpose. A person should take plain vanilla term insurance and plain vanilla medical insurance. Whatever extra money is being spent on endowment or ULIP plans should instead go into pure investments.
The more you simplify things, the better. We should not merge everything and complicate it—because that only gives you subpar returns. You should invest that extra money simply in bonds based on your risk appetite. If you're very risk-averse, buy AA- or AAA-rated bonds. If you're willing to take on a little more risk, you can consider BBB-rated bonds or build a portfolio across categories.
Just like with equities, you can build a bond portfolio and earn 10–11% returns. You'll be protected through insurance, and at the same time, you'll also create wealth in the long term.
Kshitij Anand: In fact, we've heard the technical term "bond laddering." Could you explain how bond laddering works as a strategy for meeting planned future expenses?
Vineet Agarwal:
Bond laddering is one of the most commonly used investment strategies in bonds. I'd say it's a fancy term, but the concept is very simple. It's essentially about creating a portfolio—just like you do with equities.
In equities, you invest in large-caps, mid-caps, and small-caps. Suppose you invest ₹100 in equities—you may allocate ₹40 to large-caps, ₹30–40 to mid-caps, and ₹20–30 to small-caps. The idea is that large-caps may give 10–12% annualised returns, mid-caps might deliver 13–15%, and small-caps could give 18–20% over a long investment horizon, say 10 years. This diversification gives you a balanced return—maybe 14–15% overall.
The same logic applies to bonds. You allocate your ₹100 into AAA, AA, and A to BBB asset classes. AAA bonds are like large-cap stocks—they're generally the largest and safest. You could invest 30% in AAA, 30% in AA to A-rated, and 20–30% in BBB-rated bonds.
So again, you're building a diversified portfolio just like in equities, and this approach is called bond laddering. It's a very simple yet very powerful investment strategy.
Kshitij Anand: Why do you believe fixed income investments are often overlooked by younger investors? And how can this mindset be changed? Is it because not enough reels are being created about them?
Vineet Agarwal:
Yes, first of all, I'd say it's due to a lack of awareness—because the product itself is relatively new. In fact, when we started Jiraaf almost four years ago, there weren't many tech-enabled solutions available for buying and selling bonds like there are today.
As a country, we're still maturing in terms of developing a vibrant bond market, and that's why many people haven't heard much about it. So, awareness is one issue.
There are also a lot of misconceptions about bonds as an asset class. Many people think they're very risky. But if you look at the data, for any bond that is investment grade or above, the default rate over the past 10 years is less than 1%. So, in 99% of cases, you will get your money back on the due date—unless the company goes bankrupt. And if it's a rated bond with a rating of BBB or above, the likelihood of default is under 1%.
So, lack of awareness is one issue. The second is this misconception around risk. The third reason, especially for younger investors, is that bonds aren't considered 'fancy.'
People love saying, 'I own this stock,' but with bonds—nothing really changes. You invest, and you know exactly what you'll get and when. There's no daily excitement or movement to talk about. But as the saying goes in investing: if it's boring, you'll earn money. Boring businesses and boring investments often deliver better returns.
So yes, bonds may not seem exciting, but they are extremely powerful from a portfolio perspective.