Hi everyone. Long time lurker, first time posting here.
So a bit of context about me. Im 28, working in Bangalore, earning decent money but have always just put everything into mutual funds and let it sit. Recently started reading more about fixed income and bonds and honestly its a little overwhelming. Theres G-Secs, corporate bonds, SGBs, SDLs, senior secured, unsecured, listed, unlisted… i dont even know where to begin.
Someone at work mentioned Bondscanner and said its a good place to start exploring. So here i am.
My basic questions are, should someone my age even be looking at bonds? Most of what i read online says young people should be 100% in equity. And if yes then how do i actually go about buying my first bond? Sorry if these are very basic questions.
Welcome! Dont apologise, everyone starts somewhere and honestly the fact that youre asking these questions at 28 puts you ahead of most people your age.
To answer your first question, yes you should have some allocation to bonds even at 28. The old thumb rule used to be your age equals your debt allocation percentage. I personally think thats too conservative for someone young with a long investment horizon but having zero debt allocation is also not ideal.
The way i think about it is this. Bonds are not just for old people seeking income. They serve a purpose in a young persons portfolio too. They give you a stable pool of capital that you can redeploy into equity during market crashes without having to sell anything. A lot of young investors panicked and sold equity in 2020 because they had no cushion. A small bond allocation gives you that cushion and the psychological stability to stay invested in equity during bad times.
Good advice from Mahesh. Let me add some practical context on where to actually start.
For a first time bond investor at 28 i would strongly suggest starting with Government Securities rather than corporate bonds. G-Secs are issued by the Government of India, zero credit risk, and you can buy them directly through the RBI Retail Direct platform or through Bondscanner’s secondary market listings.
The yields right now on G-Secs are decent enough for a starting point. Not as exciting as a corporate bond but remember you are taking zero credit risk. For someone just learning how bonds work, starting with G-Secs means you dont have to worry about the issuer defaulting while you’re still figuring out the basics. Learn the mechanics first, credit risk can come later.
Good advice from Anshul. Let me add some practical context on where to actually start.
For a first time bond investor at 28 i would strongly suggest starting with Government Securities rather than corporate bonds. G-Secs are issued by the Government of India, zero credit risk, and you can buy them directly through the RBI Retail Direct platform or through Bondscanner’s secondary market listings.
The yields right now on G-Secs are decent enough for a starting point. Not as exciting as a corporate bond but remember you are taking zero credit risk. For someone just learning how bonds work, starting with G-Secs means you dont have to worry about the issuer defaulting while you’re still figuring out the basics. Learn the mechanics first, credit risk can come later.
Thank you both this is really helpful. So the idea is start safe, understand how it works, and then move to corporate bonds later?
One more thing i dont understand. When i look at bond listings i see terms like YTM, coupon rate, face value, current price. Can someone explain what these actually mean in simple language? I feel like i need to get this before i put any money in.
Totally valid question, these terms confused me too when i started out. Let me try to explain simply.
Face value is the original value of the bond, usually 1000 rupees for most Indian bonds. This is what the issuer pays you back at maturity.
Coupon rate is the fixed interest rate the issuer pays you on that face value every year. So a bond with coupon rate of 7% pays you 70 rupees per year as interest, usually split into half yearly or quarterly payments.
Current price is what the bond is actually trading at in the market today. Bonds trade above or below face value depending on where interest rates are. If rates in the market have gone up since the bond was issued, the bond price falls because your coupon looks less attractive compared to newer bonds. If rates have fallen your bond price goes up.
YTM or Yield to Maturity is the most important number honestly. It tells you your total annualised return if you buy the bond at todays price and hold it to maturity, accounting for both the coupon payments and the difference between what you paid and the face value you get back at the end. Always compare bonds by YTM and not just coupon rate.