FDs, bonds and alternatives: How India's fixed-income landscape is evoling

India's fixed-income landscape evolves as higher bond yields attract investors seeking alternatives to bank deposits.

India's fixed-income investment landscape is evolving as higher bond yields bring debt markets back into focus, while some investors are also exploring alternatives to traditional bank deposits in search of higher returns.

At the Morningstar Investment Conference 2026, fund managers said the changing interest-rate environment is creating opportunities in fixed income, but cautioned investors against trying to time the market and stressed the need to match investments with their time horizon.

Manish Banthia, CIO - Fixed Income at ICICI Prudential Asset Management Company, said bonds have become more attractive after years of underperformance, pointing to what he described as a global rotation from risk assets towards bonds.

Devang Shah, Head - Fixed Income at Axis Mutual Fund, noted that the 10-year government bond yield has risen from around 6.15% in June 2025 to about 7.18%. He said current yield levels could offer attractive entry points for investors, although capital gains may not materialise immediately.

Shah said investors should avoid trying to time the market and could consider adding duration depending on how the interest-rate cycle evolves.

Sunaina Da Cunha, Co-CIO (Debt) at Aditya Birla Sun Life AMC, however, said fixed-income returns are influenced by multiple factors, including RBI policy, liquidity and market technicals such as demand and supply.

With crude oil prices elevated, Da Cunha said the rate-hike cycle could potentially last longer than currently expected. For the time being, she said she preferred liquid, money-market and very short-duration funds, while seeing opportunities in two- to three-year corporate bonds once volatility settles.

She also stressed that investors should match the duration of their fixed-income investment with when they expect to need the money, rather than focus only on the prevailing yield.

The renewed interest in bonds comes alongside a broader search for alternatives among some fixed-deposit investors.

A 2026 online survey of 10,000 investors with existing or prior fixed-deposit exposure by alternative investment platform Per Annum found that 52% of respondents said they had moved a portion of their FD corpus towards alternative investments in pursuit of higher yields and greater control over portfolio allocation.

The survey also found that 35% of respondents viewed P2P lending as an additional allocation alongside fixed deposits, while 13% continued to keep the majority of their capital in FDs, citing safety as the primary consideration.

The findings, however, are based on Per Annum's own online survey and are indicative of its surveyed sample rather than the broader population of Indian fixed-deposit investors.

The developments point to a wider diversification of the investment choices available to yield-seeking investors, spanning bank deposits, government and corporate bonds, debt mutual funds and alternative products. These instruments, however, carry different levels of liquidity, credit, market and capital risk and therefore cannot be treated as interchangeable.

India's corporate balance sheets could provide additional support to the debt market. Da Cunha said companies had used the previous cycle to raise equity, deleverage and address asset-liability mismatches, leaving corporate credit in a relatively strong position.

At the same time, Banthia said India's corporate bond market remains relatively shallow, with taxation and limited participation beyond highly rated securities among factors affecting its depth.

The emerging environment therefore presents investors with a wider set of choices, but also puts greater emphasis on asset allocation, investment horizon and risk assessment as they weigh deposits, bonds and alternative avenues for returns.