New Delhi:
As the stock markets have turned volatile amid the ongoing Iran war, many investors are rediscovering an asset class that rarely makes headlines: government bonds (G-Secs).
They don’t promise double-digit returns. They don’t create overnight wealth. But they do offer something that equities don’t — predictability.
At current yields of around 6.5-6.8 per cent on India’s 10-year benchmark government security, bonds look modest next to the Nifty’s long-term compound annual growth rate (CAGR) of 12-13 per cent. But, they also don’t come with 50 per cent drawdowns (like stocks).
This difference is exactly why bonds are finding their way back into conversations around portfolio allocation.
What Exactly Is A Government Bond?
Hemant Sood, Founder and MD at Findoc Investmart, explains it simply: when you buy a government bond, you are lending money to the government. In return, the government promises to pay a fixed interest (coupon) at regular intervals and return your principal on maturity.
In India, these bonds are issued by the Reserve Bank of India on behalf of the Government of India. Tenures range from 91-day Treasury Bills to long-dated 40-year bonds. Retail investors can buy them directly through the RBI Retail Direct platform launched in 2021.
“The biggest advantage of government bonds is safety,” says Navy Vijay Ramavat, Managing Director at Indira Securities. Since these are issued by the government, the risk of default or delayed payment is extremely low.
Importantly, India has never defaulted on a domestic bond obligation. For investors whose first priority is capital protection, this sovereign backing matters more than return potential.
Predictable Income In An Unpredictable Market
Sood points out that coupon payments are fixed and paid semi-annually. If you buy a 10-year G-Sec with a 7.1 per cent coupon, you know exactly what income will come in every six months for a decade.
This kind of predictability is valuable for retirees, conservative investors, and anyone trying to match investments with future expenses.
Liquidity and Flexibility
Unlike fixed deposits, government bonds are tradable on exchanges. The G-Sec market is the most liquid fixed-income market in India, with average daily volumes exceeding Rs 50,000 crore.
Ramavat adds that bonds can also be used as collateral in the stock market, helping investors take leverage positions more efficiently when needed.
Besides, government bonds typically have a low or negative correlation with equities during market stress. When stock markets fall sharply, bond prices often hold steady or rise as investors rush to safety.
This is where bonds act as a hedge inside a portfolio — something many retail investors overlook.
Bonds vs Equities: Not A Competition
“Bonds are for stability, equities are for growth,” says Ramavat. Both serve very different purposes.
Siddharth Maurya, Managing Director at Vibhavangal Anukulkara, puts numbers to this idea. Government bonds in India currently offer returns between 6.5 per cent and 7.5 per cent. Equities, on the other hand, have historically delivered double-digit returns over long periods.
“Hence, bonds do not serve as a route to wealth creation; rather, they provide security during stock market volatility,” Maurya says. He suggests investors allocate 20 per cent to 40 per cent of their savings to government bonds, depending on their risk profile.
It is important to note that the gap between bonds and equities is real. Over two decades, the Nifty has compounded at roughly 12-13 per cent. But in 2008 (Lehman Brothers crisis), it also fell over 50 per cent.
Government bond holders did not face that kind of volatility. They received their coupons on time and their principal at maturity. That is the trade-off every investor must weigh honestly: higher return with higher volatility, or lower return with far greater certainty.
Who Should Hold More Bonds?
- Young investors building long-term wealth: higher equity, lower bonds
- Retirees or those with fixed income needs: higher bonds, lower equity
- Anyone uncomfortable with market swings: a meaningful bond allocation
The debate is not bonds versus stocks. It is about the right proportion of each based on time horizon, income needs, and risk capacity. In a market obsessed with chasing returns, government bonds quietly offer something far more valuable – peace of mind.
{Disclaimer: The report does not constitute investment advice. Investors should consult a SEBI-registered adviser before making any investment decisions.}