Beyond FDs: How to build a diversified fixed-income portfolio

Subscribe to enjoy similar stories. Fixed income rarely grabs headlines, though it anchors most Indian portfolios. Fixed deposits (FDs), corporate bonds and certificates of deposit (CDs) may seem dull compared to equities, but they play a critical role in stability, cash flow and capital protection.

At the Mint Money Festival in Mumbai on 14 February, Vineet Agrawal, co-founder of Jiraaf, an online platform that allows retail investors to access high-yield fixed-income opportunities, explained how these instruments fit into modern portfolios. FDs remain India’s largest financial asset class, larger even than equities. That dominance, according to Agrawal, has everything to do with legacy.

“For our parents’ generation, FD was the default," he said. It was simple, predictable and felt safe. But today’s investor has more choices, and fixed income itself has evolved.

At its core, the difference between an FD, a CD and a bond lies in one basic question: who are you lending to? When you put money in a fixed deposit, you are lending to a bank. The bank promises to return your principal with interest after a specified period. CDs are similar instruments issued by financial institutions, though they are more common in money markets and among ultra-high-net-worth investors.

A bond, by contrast, is a loan to a company or a government entity. Large, highly rated companies such as the Reliance or Tata groups may issue bonds, as may mid-sized firms with lower credit ratings. Retail investors today have access to these instruments directly, enabling them to lend to companies at a predetermined interest rate for a specific tenure.