For investment in debt instruments, you can purchase them directly, or you can invest in debt funds. The relevant parameter is yield-to-maturity or YTM. This is the annualized return you will earn, provided you hold the bond till maturity. The higher the YTM at the entry level, the better for you.
In the current context, the Reserve Bank of India (RBI) has cut the signal repo rate by one percentage point, from 6.5% to 5.5%, from February to June 2025. Consequently, yields decreased, which benefited existing bondholders as prices rose. However, YTM levels came down, as yield and price move inversely. In recent years, yield levels have increased again, providing a relatively better entry point. Let us look at some data.
The most popularly tracked parameter for the bond market is the yield level of the 10-year maturity government bond. The 10-year yield benchmark, which touched 6.2% in May 2025, has inched up to 6.51% now. The 30-year government bond yield, which had reached 6.75% in April 2025, has increased to 7.2%.
Where is the opportunity?
The government bond yield curve is the base or reference point for yield levels on other bonds.
There are corporate bonds, which trade at a yield or YTM higher than that of government bonds, due to their relatively higher credit risk. Subsequent to the reference point i.e. government bond yields moving up, corporate bond yields have moved up as well. Hence, if you are entering corporate bonds today or investing in debt funds, you have a better entry point than you would have had, say, four months ago.
The more noticeable movement of yield or YTM moving up has been in State Government Securities (SGS) or State Development Loans (SDLs). These securities have been defined as sovereign by the Reserve Bank of India (RBI), along with Union government bonds. In the market, SGSs trade at a yield higher than Union government bonds. However, yields on SGSs are lower than those on corporate bonds, as SGSs are issued by sovereign governments. Rarely, yields on SGSs are higher than corporate bonds. As and when that happens, it is a market mispricing that you can take advantage of by investing at that time, at that YTM level. If you are comparing two securities, one SGS and one corporate bond, at the same yield level, SGS is better as you are getting a better credit quality, i.e. sovereign over corporate.
For a perspective on the yield level on SGS, in the primary issuance auction held on 30 September. The cut-off yield in the auction, as decided by RBI, was as high as 7.58%. This is higher than the yield available on certain AAA-rated corporate bonds. For comparison purposes, in the SGS primary issuance auction held on 22 July 2025, the comparable highest cut-off yield was 7.11%. The upward movement in SGS yield has happened due to certain technical reasons, but for you, it is a market opportunity to take advantage of.
How to do it?
There are certain mutual fund schemes that have portfolios oriented towards SGS. The NAV valuation that takes place every day is at market-related price levels. Since the YTM of these funds has increased, prices have decreased. The net asset values (NAVs) of these funds are that much lower. That provides you with a better entry level. Apart from the SGS-oriented debt funds, there are the usual debt MFs you invest in, e.g. Corporate Bond Funds.
Here, too, a similar impact has occurred; i.e., NAVs are softer and relatively better to enter than they were, say, four months ago. This is due to the base, i.e. government bond yields, pushing up corporate bond yields.
Timing investments
As long as you have a long investment horizon, the timing of the entry does not matter much. This is more for your awareness. There is a view in the investment and fund distribution community that RBI rate cuts are almost over, the consequent rally has already happened, and there is no point in investing in debt funds now. There may be one last cut of 25 basis points (0.25%) by RBI in the current rate cut cycle, as inflation is benign. As of now, the yield levels are within a range, but if there is one further rate cut, then yields will dip and bond prices will move up.
Joydeep Sen is a corporate trainer (financial markets) and author