What are the drawbacks of diversifying bonds?

[Anvika]

How might diversifying a bond portfolio with equal proportions of gold and silver (e.g., ₹40,000 bonds, ₹20,000 gold, ₹20,000 silver) affect things?

[Siddarth]

The gold and silver market is very volatile, so diversifying bonds is a very good idea for risk reduction, but over-diversifying can reduce fixed income stability and will increase complexity. Before investing, keep these things in mind:

1. Bonds offer a fixed interest rate, but gold and silver won't (unless you invest in SGBs).

2. Gold is still a safe option, but silver's price fluctuates a lot because of industrial demands. This all will create more price fluctuations in your overall portfolio.

3. When you sell gold and silver, there is a capital gains tax, which is different from the bond taxation system.

If your primary goal is stability and income, then you should rethink investing this much in gold and silver. I suggest you invest in Sovereign Gold Bonds (SGBs) as they are more tax-efficient.