Your Money: Performing credits carry higher risks
In the context of investing in bonds / debentures, the risk level of getting or not getting your money back in time is perceived through the credit rating. In most cases, yield level in the secondary market varies from one bond to another, in the same rating category. Yield level is the annualised return you will get, provided you hold the bond till maturity. The significance of yield level being different, even for the same credit rating, is that the market assigns different risk levels to various bonds. The market in this case comprises the ‘big boys’ i.e. banks, insurance companies, mutual funds, corporate treasuries, etc.
What are the avenues for you to invest in bonds? You may either purchase for yourself through a broker, or go through an investment vehicle. The investment vehicles are mutual funds, portfolio management services (PMSs) and alternative investment funds (AIFs). In PMS, the mandated minimum investment amount is Rs 50 lakh, or it could be even higher if the service provider sets it higher. In AIFs, the mandated minimum amount is Rs 1 crore.
Bonds for retail investors
Mutual funds are for everyone; retail investors to HNIs to large corporates. There are bond houses who purchase in bulk and down-sell to individuals in not-so-large lots. In today’s age of digitalisation and online availability, bonds are available on certain websites in reasonable lot sizes.
In bonds, higher the yield at which you are investing, the higher is your returns. In a vehicle like a mutual fund, there is a NAV declared every day at market based prices. Hence, there is no commitment that the yield of the mutual fund portfolio will be delivered. But it is a proxy for your expected returns. Mutual funds, being meant for retail
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