Bonding with bonds: high yields possible, but be mindful of the risks

In bond investments, there are high-credit-quality bonds with single-digit returns and investment-grade bonds with double-digit returns. High-credit-quality bonds are government bonds or AAA-rated corporate bonds. Investment-grade is a technical term; it refers to bonds rated BBB and above. There is a credit rating scale moving from AAA to AA to A to BBB; the definition of investment grade is based on this. For high-credit-quality bonds, you can go through the mutual fund route, or do it yourself (DIY) through online bond platforms. For high-yield investment-grade bonds, there are products from Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs), but for bigger ticket sizes. Or you can DIY through online bond platforms.

When you go through the morning newspapers and see cover-page ads screaming about attractive double-digit returns, it has to be seen in perspective. Return and risk go hand in hand; returns come from risk. When you are going through a high-yield fund offered by an AIF or investments curated by a PMS, a fund manager conducts due diligence on the bond issuers. When you are DIY, you may not have the bandwidth to do the research and understand the risks. The full-page ad showcasing lucrative returns has been put up by a Securities and Exchange Board of India (Sebi)- registered entity, but it has no accountability if and when the issuer defaults. To be fair, in a mutual fund or AIF or PMS, the fund manager would not pay you from their pocket in case of default. However, they have their goodwill at stake. For a professional fund manager, a default tarnishes the image. When you are going for high-risk river rafting, you would rather have a professional guide on your boat.

There is a risk of a communication gap here; let us cite two examples. The ad states that these are secured bonds. ‘Secured’ is a nice-sounding word, but digging into what it means—it means a charge against the assets of the issuer. These are physical assets, e.g., land, buildings, or machinery. You would feel happy: in case the issuer defaults, you have access to these assets. However, in that event, you cannot just sell the underlying assets—you have to go to court. Once a suit starts, how long it will take to get settled and how much you will recover are anyone’s call. Second example. It is mentioned that these are credit-rated bonds. But you have to look at the credit rating—is it AAA or BBB? For all you know, it could even be below investment grade, i.e. below BBB. You have to have your antennae up, particularly when you are DIY.

Sebi consultation paper

The grey areas and borderline issues regarding the loud advertisements mentioned earlier bring us to one relevant aspect. On 21 August 2026, Sebi issued a Consultation Paper on Advertisement Code for Online Bond Platform Providers (OBPPs). Certain provisions in the paper merit a highlight, if you are DIY, for risk assessment:

“It has been observed that advertisements increasingly utilize behavioural prompts, urgency-based messaging and promotional techniques that may encourage investors to take investment decisions without adequate due diligence. Accordingly, it is considered necessary to address advertisements that create artificial scarcity, Fomo or otherwise induce investors to make hurried investment decisions”. Self-explanatory.

“Standard warning in legible fonts which states “Fixed returns are not guaranteed returns. Investments in debt securities are subject to market, credit and default risks.” Since people have a bank fixed-deposit mindset towards all fixed-income investments, including market-linked ones, this is important.

“OBPPs are permitted to utilize the phrases such as “Returns are predictable” or “Passive Income”, “market volatility” etc., which touch upon the nature of the debt securities. These phrases shall be used in a generic, non-promissory manner, supported by adequate risk disclosures, appropriate disclaimer as prescribed”. Note that fixed income investments are predictable, unlike equities, but there is no guarantee.

“Adjectives such as high yield, high rated, high returns and synonyms of such words, which are vague and general without any basis shall be avoided”. This is important. What is high rated and what are higher returns is subjective and open to debate.

If you are going with a fund manager, you can check pedigree and track record. If you are DIY, or do not have the ticket size for PMS/ AIF, you need to be careful about tall claims.

Joydeep Sen is a corporate trainer (financial markets) and author.