The case for fixed-income investments: What Gen-Z investors should know

Time of India

11-07-2025

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In an age where equity markets and cryptocurrencies dominate the headlines, fixed-income investments might not seem like the most exciting choice for Gen-Z investors However, the choice of investment should not be determined by the latest market trend but rather align with an investor's specific goals.Let's see how the young investors can use fixed income instruments for their advantage in times when there are multiple options to choose from.According to Siddharth Chaudhary, Head of Fixed Income at Bajaj Finserv AMC, "The cultural and social context has changed, making Gen-Z better-informed investors. Therefore, the expectation should be that their investment decisions align better with their objectives."For young investors looking to build a stable financial foundation, fixed-income products like bonds offer an ideal avenue for creating emergency funds , saving for upcoming expenses such as education or travel, and more.While equity investments may offer high returns, they come with a level of volatility that can be unsettling, especially for short-to-medium-term goals. Fixed-income options, on the other hand, offer stability and predictable returns, making them a perfect complement to a diversified portfolio.Chaudhary suggests that young investors should focus on understanding the risk associated with various fixed-income products. "Mutual funds provide a range of investment options for all investors. Investors can choose to invest even in a one-day investment horizon through an overnight fund," he notes.For those looking to park money for the short term, he recommends low-duration funds and overnight funds, while those with longer-term goals can consider duration funds or short-term funds.Interest rates, inflation, and RBI policy decisions also play a crucial role in determining the performance of fixed-income investments. Chaudhary explains that the Reserve Bank of India uses interest rates as a key policy tool to manage inflation and economic growth."If the RBI increases interest rates, borrowing and consumption become slightly more expensive, leading to reduced demand and softening of prices, which brings down inflation," he says.Understanding these market cycles and trends allows young investors to time their investments in fixed-income products effectively, opting for long-duration funds when interest rates are about to peak and short-term funds when rates bottom out.The rise of platforms like Bond Central has also made fixed-income products more accessible to retail investors. Chaudhary views this as a positive development, saying, "This is a welcome trend and will enable further penetration and dissemination of investment choices for eligible investors."As retail participation in the bond market grows, liquidity improves, and the market becomes more robust, ultimately benefiting all investors by providing better access to a wider array of fixed-income options.However, despite the advantages, Gen-Z investors often make mistakes when approaching fixed-income products."To Gen-Z, fixed income can seem like the broccoli of investing — healthy but not exactly thrilling," Chaudhary observes. He advises investors to compare the performance of medium-to-long-duration funds against broad equity indices, especially in times of uncertainty.Fixed income offers a safer option to mitigate risk and earn higher risk-adjusted returns during volatile market periods. Another common mistake is ignoring credit risk and interest rate sensitivity. Understanding bond ratings and how duration affects risk can go a long way in ensuring a successful investment strategy Chaudhary emphasizes the importance of disciplined investing, particularly through Systematic Investment Plans (SIPs), which allow investors to build their corpus over time and benefit from the power of compounding. He also warns against the temptation to incur high-interest debt too early in life."Disciplined investing trumps market timing," he adds, stressing the long-term benefits of starting early. In his analogy, he compares equity and fixed-income investing to Lord Ram and his brother Lakshman: "Ram embodies vision, courage, and the pursuit of long-term value, even if it means embracing higher risks. Lakshman, on the other hand, represents security and stability, especially during turbulent times.According to Chaudhary, for Gen-Z investors, both asset classes should work together to form a balanced and resilient portfolio.As fixed-income products become more accessible and relevant in the investment landscape, young investors are in a unique position to leverage these opportunities for financial growth and security. By carefully considering their risk appetite and aligning their investments with their personal goals, Gen-Z investors can create a robust portfolio that balances both risk and stability.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)