How good are non-convertible bonds as a mode of investment?
- Surendranath
There are three things to any bond -the quality of the company that is issuing the bonds, the maturity of the bond and how much it will be yielding and how often it will be paying it. So, based on these three parameters, one invests in a bond.
I would say that if you want to invest in a bond, consider a corporate bond fund. The benefit of diversification in a corporate debt fund is substantial. For example, if you invested Rs 10 lakh in a very good company's high-yielding bond but if it defaults, all your money will be stuck. Now, if you invest in a bond fund and the bond fund manager faces a problem, he might face a problem with 5 per cent of the portfolio, then only 5 per cent of your money will be exposed to that kind of risk. So, default and credit risk will be limited, while the benefit of diversification in a fund will be huge. Thus, I would say that investing in non-convertible bonds of high-quality companies is not a bad idea but if you have to invest in a corporate bond, go for a corporate bond fund.
