FDs, Bonds, SDIs: A guide to smarter fixed income investing with Grip Invest’s Nikhil Aggarwal

India’s bond market is evolving rapidly. Interest rates are falling, companies are raising more capital through bonds, and global investors are showing greater interest—especially after India’s inclusion in major global bond indices. With increased foreign inflows and the rising popularity of securitized debt instruments (SDIs), the fixed-income landscape is becoming deeper, broader, and more complex.

In an insightful conversation with BT, Nikhil Aggarwal, Founder & Group CEO of Grip Invest, decodes the key trends, opportunities, and risks shaping fixed-income investing—and what lies ahead.

Q. How is the current interest rate environment influencing India’s bond market?

Aggarwal: The declining interest rate environment has clearly boosted the attractiveness of the bond market. Companies and government entities are leveraging this opportunity to raise debt. We’re seeing a noticeable preference for short-term corporate bonds, largely because banks haven’t fully passed on earlier rate cuts.

For instance, corporate issuers raised Rs 61,200 crore through bonds of up to five years in May 2025—almost triple the amount compared to the same month last year. From an investor’s perspective, as fixed deposit (FD) rates dip, corporate bonds offer a more compelling alternative. They’re less sensitive to repo rate changes and provide more stable returns.

We saw a similar trend back in 2020-21 when the RBI aggressively cut rates—corporate bond issuances surged then too. In April 2025, companies raised Rs 987 billion via bond sales, the highest ever for the first month of a financial year, according to Prime Database.

Q. What’s driving foreign investors back to Indian debt markets after the earlier outflows?

Aggarwal: The tide has turned in 2025. After seeing $6.7 billion in net outflows in January due to global uncertainty, FPIs have become net buyers again. In just the first half of June 2025, they pumped in $2.1 billion into Indian debt.

Several factors are behind this shift. Global central banks, especially in developed markets, are expected to pause or even cut rates, making emerging markets like India more attractive. Add to that India’s strong economic performance—GDP grew by 7.4% in Q1 2025—and a relatively stable bond market environment compared to countries like the U.S. and UK.

The narrowing yield spread between U.S. and Indian bonds has also played a role. India’s 10-year yield fell to 6.2% while the U.S. 10-year rose, shrinking the spread to a two-decade low of 170 bps. It’s a double-edged sword though—while it attracts inflows now, a further narrowing could reduce future interest.

And, of course, India’s phased inclusion in the JPMorgan GBI-EM Index is drawing global funds. It’s expected to bring in $20–30 billion in inflows, reflecting growing confidence in India’s bond market.

Q. How has India’s inclusion in global bond indices impacted liquidity and yields?

Aggarwal: It’s been a game-changer. Inclusion in the JPMorgan Emerging Market Bond Index and others has significantly boosted liquidity in the Indian bond market. Foreign institutional investors and passive funds that track these indices have increased their exposure.

In fact, FPIs invested Rs 1.32 lakh crore into fully accessible route (FAR) bonds in FY25—the highest in five years. That influx has pushed up bond prices and brought down yields.

These developments, coupled with fiscal discipline and softening U.S. yields, have supported this trend. The result is a more dynamic, globally integrated bond market that’s becoming increasingly attractive for both global and domestic investors.

Q. Where do corporate bonds fit in India’s fixed income landscape, and how do their yields compare to government bonds?

Aggarwal: Corporate bonds have really come into their own. Issuance grew from just $3 billion in 2014 to a massive $147 billion in 2024—an impressive CAGR of around 54%.

What’s notable is the growing diversity of issuers. This means less concentration risk and a wider range of risk-return profiles for investors. Compared to government securities, corporate bonds usually offer higher yields, especially in the A to AA+ segment, making them an attractive option for yield-seeking investors.

Q. How should retail and institutional investors approach fixed income in the current cycle?

Aggarwal: With the Reserve Bank of India (RBI) expected to cut rates further, both retail and institutional investors have a strategic opportunity to optimize fixed-income allocations. A declining rate cycle generally results in rising bond prices, providing capital appreciation alongside regular interest income. These assets may be well-suited for users based on current market conditions:

A-Rated Bonds: Offer better yields with moderate risk. Great for investors who do their homework or invest via managed platforms.
AA-Rated Bonds: Excellent risk-return balance. Ideal for those looking for safety with enhanced returns.
Corporate Bond Funds: These funds, primarily focused on AA+ and above-rated debt, have seen record inflows—Rs 1.96 lakh crore as of May 2025.
In this environment, a smart fixed income strategy should focus on:

Rate sensitivity for capital gains,
Liquidity for near-term needs, and
Credit quality to avoid defaults.
Maintaining a balance between return potential and credit risk is key.

Q. Can you explain what SDIs (Securitized Debt Instruments) are and how they compare to regular bonds?

Aggarwal: SDIs are fixed-income products backed by income-generating assets like retail loans or leases. Think of it as a pool of, say, car loans packaged into a single security and sold to investors.

They’re regulated by the RBI or SEBI and typically offer higher yields than similar-rated corporate bonds. That’s because they come with added risks—like complexity, credit quality of underlying loans, and lower liquidity.

But they also come with strong risk controls—credit enhancements, over-collateralization, and minimum issuer “skin in the game.” For investors who understand the product, SDIs can offer an excellent risk-return trade-off.

Q. What kinds of SDIs are most common in India, and who’s buying them?

Aggarwal: Vehicle loans dominate the SDI market, though we’re also seeing home loans and personal loans being securitized. In FY25, total securitization volumes hit Rs 2.35 lakh crore—the highest ever.

Institutional investors, especially banks, are the biggest buyers. But we’re also seeing increasing participation from retail and HNIs. Regulatory changes—like the removal of minimum face value requirements—are making SDIs more accessible to a broader investor base.

Q. What risks should investors be aware of when investing in SDIs, and how can they manage them?

Aggarwal: While SDIs have performed well, including during COVID-19, investors need to understand the key risks:

Credit Risk: Borrowers defaulting on underlying loans.
Pool Risk: Overconcentration in certain sectors or regions.
Servicer Risk: Issues with the NBFC managing the loan pool.
Liquidity Risk: Difficulty in selling these instruments in a downturn.
To mitigate these risks, investors should stick to diversified pools across geographies and sectors. Look for strong credit enhancements such as excess interest spread or cash collateral. Choose reputable originators with a proven track record and regularly review ratings and third-party monitoring data.

Despite these risks, SDIs have demonstrated remarkable resilience, with no major capital losses in over 450 rated transactions since 2018. With proper due diligence, they can be a valuable addition to any fixed-income portfolio.