Regulatory measures to improve retail participation in corprate bonds

10 Jan 2023

We’ve always believed that bonds and maybe not stocks are the right stepping stone for most Indians—better than FD returns but lower risk than stocks.

But bonds have been an HNI product, and no one sold them to retail. But SEBI has just made some important changes recently.

There were two big issues:

  1. Availability of bonds with small face values. Most bonds are issued through private placements and have face values of Rs 10lakh+. So retail investors were priced out.

  2. All bond deals had to be settled through the clearing corporations, and they only accepted RTGS as a payment mode. So the minimum transaction size became Rs 2 lakh + by default.

In the last few months, SEBI has made some key changes that make it easy for retail investors to invest in corporate bonds

  1. The face value of privately placed bonds was reduced to Rs 1 lakh.

  2. Brokers are now allowed to participate on Request For Quote Platform (RFQ) on behalf of investors

  3. The most important change from yesterday was allowing alternate payment modes apart from RTGS. Now, bonds < than 1 lakh can also be settled through clearing corporations.

These measures will go a long way toward making it easier for retail investors to invest in corporate bonds. As retail demand increases, we should hopefully see more bond issues with smaller face values. Link to yesterday’s circular.

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