By Abhijit Roy
Equity and debt securities have remained the top two investment types for retail investors of different generations, including Millennials. Although equity instruments generally offer high return potential, they are linked to the stock market and therefore returns are subject to market risk. On the other hand, debt securities such as FDs and RDs offer significantly lower but fixed yields.
The strategic investment context
Until a few decades ago, retail investors in India, especially middle-income families, opted for a highly leveraged portfolio with some equity exposure; he paved the way for financial security in what was a slow-growing economy. However, this is no longer the case. A shift in financial goals – wealth is the primary life goal for 80% of millennials according to a Morgan Stanley report, with incomes and lifestyles defined by the world’s fastest growing economy and high levels of uncertainty encountered during the pandemic, have made millennials a strategic strategy for investors.
They leverage the power of digital platforms to make financial decisions that achieve their goals despite a volatile and unpredictable global economy. Over 81% of digital investors (Millennials are the largest category of digital-first investors) began their investment journey post-pandemic, as confirmed by a Benori Knowledge survey. This highlights the fact that millennials have increasingly begun to focus on financial security.
The diversification opportunity
As millennials seek to build a balanced portfolio that can perform well during periods of strong growth as well as during phases of high volatility, it becomes important to add low-risk, medium-return instruments, especially for short and medium term goals. Such an approach also becomes essential for building a corpus based on savings for emergency planning.
This calls for a change of habits; investors should look beyond mutual funds to instruments that can be researched, purchased and managed online. Second, they must recognize that current inflation rates exceed the returns offered by traditional debt-based fixed income instruments such as FDs and DRs.
Bonds and debentures, debt-based instruments offering fixed returns, present an attractive opportunity. They offer higher returns than FDs and RDs, are not linked to the market, require a minimum investment as low as Rs.10000 and offer the choice of investment term. Today, over 100 bonds and debentures are available for review, comparison and purchase for investors looking to diversify their portfolios without compromising the convenience of digital personal finance platforms.
Invest in bonds and debentures
According to industry estimates, the Indian bond market is valued at $1.2 trillion Gsec, with $800 billion in corporate bonds growing at a CAGR of 12%. Such market transformation presents a great opportunity for all digital savvy investors, especially millennials who are digital natives; today, there are a growing number of digital investment platforms that offer the convenience typically associated with online mutual fund platforms, but for debt-focused products. They offer investors complete authority in managing their bonds and debentures, which is essential in today’s fast-paced and agile environment.
However, to achieve optimal returns from bonds and debentures, it is essential that millennials maintain constant momentum. Discipline is the key to a successful portfolio, especially in the case of non-market-linked instruments with fixed returns. Therefore, it is essential to ensure that the duration commitment of the bonds selected matches the target timeframe. Similarly, updating the basis for assigning the age rule (100 years) may be a good guiding principle. For example, a 30-year-old can choose to have 70% equity exposure and 30% debt exposure. Finally, millennials should take into account that bonds generally generate higher returns during periods of market volatility, which makes them effective hedging instruments.
In summary, investing in bonds and debentures can be a rewarding opportunity for millennials looking to access alternative instruments. They can help them diversify and get closer to their savings, investment, and wealth-building goals in a relatively safe and convenient way.
(The author is the CEO and co-founder of Golden Pi. Opinions are personal)
