Indian households have traditionally leaned on equity, real estate, and gold to build wealth. However, by not including fixed-income assets in the mix, many portfolios are experiencing significant slippages in returns. The reason is simple: both equity and gold, while powerful in the long run, are market-linked and highly volatile. , on the other hand, is relatively illiquid. The volatility of equities and gold, as well as the illiquid nature of real estate, makes it unsuitable for goal-based investing.
Imagine investing for your child’s education or a home purchase, only to be forced to liquidate or gold during a market downturn. Not only do you book lower returns, but you may also end up dipping into the corpus to match the shortfall meant for other long-term goals, such as retirement.
One might argue that (FDs) could step in as an alternative. However, FD returns do not even keep pace with inflation, and locking too much of your portfolio in them almost guarantees underperformance in the long run.
What Indian investors need is an asset class that combines safety with meaningful growth; this is where bonds can step in as the fourth pillar of personal finance.
Why Bonds Deserve a Seat at the Table
Equity markets can deliver impressive wealth in the long run, but their swings make them unreliable when your goal has a fixed timeline. , too, tends to surge and slump based on global sentiment, making it an inappropriate asset for goal-based investing. While real estate is often seen as a stable investment, it is also illiquid and capital-intensive.
Bonds offer a middle path. Corporate and government bonds provide predictable cash flows, eliminating the volatility associated with equities and gold. Investment-grade today yield in the 8%–15% range, far higher than most FDs. Government securities (G-Secs), on the other hand, offer sovereign-backed safety, making them the appropriate choice for parking your emergency funds.
Crucially, bonds align well with goal-based investing. By laddering maturities, you can time cash flows to coincide with milestones, such as a child’s college fees, home down payments, or retirement income needs. This eliminates the risk of being forced to liquidate volatile assets at the wrong time.
Retail Adoption Is Still Nascent
Despite these advantages, bonds remain an under-owned asset among Indian households. Over 45% of household financial savings still sit in FDs, according to RBI data. Equities and mutual funds have gained popularity, but bonds are still viewed as an institutional product.
This gap stems from three factors:
- Awareness: Investors often view bonds as complex, with jargon such as yield-to-maturity and coupon payments deterring them.
- Accessibility: Direct participation was long limited to banks, insurers, and wealthy individuals.
- Mindset: For years, FDs were the default “safe” investment, leaving little incentive to explore alternatives.
But this is changing. SEBI-registered Online Bond Platform Providers (OBPPs) are now making bonds accessible to retail investors with entry points as low as ₹1000. The result: bonds are no longer reserved for institutions; they are becoming a powerful financial tool for every Indian.
Expert View: Diversification, Not Competition
The key takeaway for investors is that the conversation shouldn’t be about choosing one asset class over another. A well-diversified portfolio should include all four pillars equity, real estate, debt, and gold, with allocations tailored to one’s financial goals and risk profile.
This approach is critical because relying solely on equity and gold exposes the portfolio to unnecessary volatility, while depending entirely on FDs risks stagnation. Real estate could lock in your money, making it ideal only for ultra-long-term investing.
Bonds, in contrast, provide a stabilising effect, enabling goal-based investing without disrupting long-term growth and compounding.
A Practical Example: Moderate Risk Investor
Consider a 35-year-old professional with a moderate risk appetite and a ₹10 lakh investable portfolio. A balanced allocation might look like this:
- Equity (35% = ₹3.5 lakh): For long-term growth through stocks or equity mutual funds.
- Bonds (30% = ₹3 lakh): Investment-grade corporate bonds and government securities to provide predictable income for short- to medium-term goals.
- Real Estate (25% = ₹2.5 lakh): Either direct property investment or exposure through REITs.
- Gold (10% = ₹1 lakh): Physical gold, ETFs, or sovereign gold bonds to hedge against uncertainty.
Here, bonds become the stabiliser. If this investor needs ₹3 lakh in three years for a child’s education, relying on equity or gold carries liquidation risk. Bonds, with fixed maturities and steady yields, allow the goal to be met without disturbing equity investments earmarked for retirement.
Conclusion
Indians can no longer afford to ignore the risks of volatility and stagnation in their financial planning. Equity and gold are valuable but unreliable for time-bound goals. FDs are safe but underwhelming. Real estate is aspirational but illiquid. Bonds, however, bring stability, liquidity, and inflation-beating returns to the table, exactly what most investors need.
By embracing bonds as the fourth pillar of personal finance, households can prevent return slippages, protect goal-based investments, and secure their long-term financial future. The time has come to stop treating bonds as an afterthought and start seeing them as essential.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.