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Jeffrey Hutton is a Morningstar contributor.

Just days after the Australian Securities Exchange and ASIC approved the sale of fixed-income exchange-traded funds (ETFs), their proponents are betting the instruments may balloon into a half-billion-dollar industry by the end of the year.

The products mirror underlying benchmarks and can be traded on the stock exchange. The idea is to give smaller-scale investors access to a bond market where the minimum threshold can be $500,000 or more.

"This is the democratisation of the fixed-income market," says iShares director Tom Keenan. "You're taking an over-the-counter market and putting it on the exchange."

Whether you the investor join the movement depends on your views of the prospects for an equity market rally, and whether banks will extend cuts to interest rates offered on term deposits.

Amanda Skelly, director of ETFs at Russell Investments, admits that recent gains on equity markets may sap demand for defensive assets like bonds, but she asks, isn't that we all thought this time last year?

"We just don't know. There is a lot of volatility in the market," Skelly says. "If you're not convinced equity markets will improve you may want more defensive holdings."

The S&P ASX 200 has gained almost 4 per cent already this year. But last year, defensive holdings would have worked a treat for most Australian retail investors. And for many, going defensive means selling down property and equities, and buying term deposits.

Self-managed super fund administration service provider Multiport's most recent data says cash and short term deposits made up almost a quarter of DIY super assets as at the end of September.

That's compared with 36 per cent for equities and 14 per cent for fixed income.

Still, with interest rates under pressure, term deposits may lose their lustre, Skelly says.

"Cash has been a great place to be in recent years," Skelly says. "Rates are coming down and that's going to heighten the need to diversify."

So, what's the upside for fixed-income ETF investors? Take the following hypothetical example of what's at stake: had the instruments been available last year, they would have gone a long way to cushioning the 10.5 per cent fall in the in the ASX 200.

A fixed-income ETF tracking the UBS Comprehensive Bond Maturity Index - a widely followed bond benchmark - may have gained more than 11 per cent in the 12 months ended 2011, iShares Keenan says.

The company's own iShares S&P/ASX 20 (ILC), which tracks the performance of equities listed by the 20 biggest companies on the ASX, slumped 9.3 per cent.

European debt woes will likely trigger more spikes and troughs for sharemarkets, Keenan says. Media reports say Greek bailout talks are near collapse again because of a one-week standoff between the Greek government and its creditors over interest rates on new bond sales.

"No one is predicting an end to volatility," Keenan says.