What investors need to do to enhance their basic fixed income returns

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The most basic, and safe, returns on investments are those derived from liquid funds, or returns from fixed income funds that are of good credit quality. While asset classes such as equities provide better returns, there are ways that conservative investors can enhance their basic returns without taking too much of the incremental risk.

The current corporate credit environment is relatively better than earlier. There are now more credit rating upgrades by rating agencies than downgrades. Corporate balance sheets, too, are less leveraged; most companies did a good job of deleveraging during the covid pandemic. There are bonds and debentures rated lower than AAA, say AA or A, but are of somewhat good quality. One way to invest in these is through credit risk funds of mutual funds. However, the expenses charged for credit risk funds are usually higher, which would take away from the higher returns that one gets from the papers that are rated AA or lower.

If your investment ticket size is ₹50 lakh or higher, you can opt for the fixed income strategies offered by portfolio management services (PMS) of asset management companies with a proven track record. Do make sure that the recurring expenses are reasonable. If your investment ticket size is lower, you can purchase bonds directly from the primary or secondary market. You can get into secondary market bond deals as the client of a bond dealing house or buy through online bond provider platforms (OBPPs). However, the issuing entity should be reliable where the bonds are rated lower than AAA, since you are taking a credit risk.

It is advisable to have a proper allocation to equity, fixed income and other asset categories. If you are a conservative investor, depending on your