Mumbai (Maharashtra) [India], August 18 (ANI): India's corporate bond market continues to have lower liquidity than the equity market due to relatively low trading volumes, even as efforts are being made to increase retail participation, according to Grip Invest CEO Vaibhav Laddha.
Speaking to ANI on the sidelines of the Great Indian Bond Festival at the National Stock Exchange (NSE) in Mumbai on Tuesday, Laddha said corporate bonds are listed and tradable, but the market does not yet have the depth or level of trading activity seen in equities.
"Today markets are not as liquid as the equity markets because the trading volume is not that high," Laddha said.
He clarified that lower liquidity does not mean investors cannot sell their bonds before maturity.
"There is no difficulty in trading bonds or exiting them before maturity because they are listed tradable instruments. However, as I said, the market depth or the trading activity is not so much there," he said.
His comments come as the corporate bond market seeks greater participation from retail investors, with lower ticket sizes making bond investments more accessible to individual investors.
On the risks involved in corporate bonds, Laddha said investors should understand that higher yields generally come with higher risk.
"Risk and yields are correlated. Higher the risk, higher the yield," he said.
Laddha said credit ratings provide investors with a way to assess the risk associated with corporate bonds. He said ratings range from AAA, which carries relatively lower credit risk, to BBB within the investment-grade category, while bonds rated below BBB are not investment-grade instruments.
"Higher the rating, lower the yield," he said, adding that investors should select bonds according to their risk appetite.
"For some, AAA and AA bonds might be the fit. For some, some part of your portfolio can go into BBB bonds, which will offer you much higher returns than your average fixed deposits or instruments like those," Laddha said.
On corporate bonds versus traditional bank fixed deposits, he said bonds should be seen as another investment option rather than a replacement for FDs.
"The asset allocation is really important. So if you have 100 rupees of net worth, then you should invest a part of that in equity, fixed deposits, and then something like bonds," he said.
Laddha said increasing awareness and understanding of bonds would be important as more retail investors explore the corporate bond market. (ANI)
Corporate bond market still lacks equity-like liquidity, higher yields generally come with higher risk: Grip Invest CEO
