Investing at the top of the interest rate cycle

livemint.com:

debt market too out there. And various kinds of debt. Perhaps we will revisit that later.

Today, let’s stick to low-hanging, almost zero-default risk, opportunities, i.e., government-guaranteed bonds. Here are some things to keep in mind when investing in government-guaranteed bonds: 1. Interest rate movements are never guaranteed.

If interest rates move against you, i.e., higher, you will suffer an interim capital loss. So before you pull the trigger to invest, do your research well. 2.

Your asset allocation has a place for interest-paying instruments. Even if you are a perma bull. As you can see from the example above, investing smartly in bonds can be a source for solid returns without exposing yourself to things like default risk.

3. As you would with stocks, over time you could consider having a portfolio of bonds as wwell. Of course, perhaps start with guaranteed bonds.

And over time, as your understanding develops, you can widen your scope to private sector bonds. Having said that, there could be challenges in doing this. A simple alternative to this is to buy a bond mutual fund that meets your requirements.

But if you do go down this road, be sure to check under the hood, i.e., which bonds does the scheme own. You don’t want to take the risk of default, especially if you are just starting out as a bond investor. Finally, if you are indeed open to investing in bonds issued by the government of India, should you consider investing in dollar denominated bonds as well? Perhaps.