Online bond platforms see sharp jump in retail participation. Here’s what data shows

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The number of retail investors and value of investments made through online bond platforms have increased by over 100 percent in the last three years, data compiled from various bond platforms showed.

The bonds, which are offered on these platforms generally include bank bonds, PSU bonds, government guarantee bonds, state development loans (SDL), sovereign gold bonds, real estate bonds, and public issue of bonds, among others.

Currently, there are more than 10 SEBI-recognised online bond trading platforms in India, according to market participants. These include IndiaBonds, GoldenPi, The Fixed Income, Wint Wealth, and Bondskart, among others.

Numbers

The number of retail investors on the Fixed Income bond platform, climbed from 6,532 in 2020, to 32,710 in 2021, to 34,184 in 2022, and 13,498 so far in 2023. This platform is backed by the Tipsons Group, which is presence in investment banking, merchant banking, and equity broking, among others.

Also, the amounts invested by these entities in this platform increased from Rs 122.51 crore in 2020, to Rs 671.91 crore in 2022, Rs 294.15 crore in 2023 so far.

Similarly, data from another bond platform, Wint Wealth, showed that in FY21, 901 investors had invested Rs 13.92 crore, which increased to 19,106 investors who invested Rs 230.20 crore in FY22, and to 29,971 investors who invested Rs 542.38 crore in FY223.

Why the jump?

The jump in participation is partly because some investors have moved from debt mutual funds to bond platforms seeking higher returns on their investments, dealers said.

“Unlike bonds, debt mutual funds have recurring asset management companies’ charges on investors,” said Anshul Gupta, Co-Founder, and Chief Investment Officer, Wint Wealth.

“Furthermore, debt mutual funds are constrained by sectoral investment limits and must maintain cash reserves to manage liquidity requirements. These factors contribute to lower returns for investors,” Gupta said.

Online bond platforms are companies in India that have websites or mobile applications to sell bonds or non-convertible debentures (NCDs) to investors, especially retail investors.

According to the dealers, investment by retail investors showed a jump partly due to the high volatility in the equity market in the recent past.

Tirth Shah, Founder, thefixedincome.com, said the launch of online bond platforms has made it easier for retail investors to access bond instruments directly, which was previously challenging for them.

“This enhanced accessibility has instilled confidence and transparency in the bond market, as retail investors now have access to comprehensive information regarding bond offerings, pricing, rating rationale, and investment mandates,” Shah added.

In the last few years, aggressive marketing by bond platforms have also helped investors move from fixed deposits and debt mutual funds to online bond platforms.

Also read: Online bond platforms back in the spotlight after debt fund tax but liquidity issues remain

Growth in returns

During the last three years, yields on corporate bonds increased by over 100 basis points (bps) across tenures, largely after the start of the rate hike cycle by the Reserve Bank of India (RBI) in May last year.

The yield on the three-year bond trading at 6.30 percent levels in 2020, moved up to 7.40 percent levels in 2023. Similarly, the yield on the five-year bond was 6.50 percent in 2020, which increased to 7.45-7.50 percent in 2023.

The returns increased after the central bank hiked the repo rate by 250 bps since May last year, before pausing in the April monetary policy meet. One basis point is one-hundredth of a percentage point.

Shah further said the attractive returns offered by bonds, particularly state government-categorised bonds of 9-9.50 percent, have further enticed investors to explore the bond market. The overall improvement in the government securities market has also contributed to the growing interest in bond investments.

Also read: Two online bond platforms set to apply for stock broker licence in January post SEBI's new rules

Regulators and government push

Recently, Indian government and regulators have initiated various measures to deepen the bond market and increase retail participation.

These include the Securities and Exchange Board of India (SEBI) on October 28 announcing reduction in the face value of debt security and non-convertible redeemable preference shares issued on private placement basis to Rs 1 lakh from the current Rs 10 lakh with effect from January 1, 2023.

Further, SEBI, on November 11, introduced the regulations for online bond platforms selling listed debt securities. According to the rules, no person or company shall act as an online bond platform provider without a certificate of registration as a stock broker under the SEBI (Stock Brokers) Regulations.

All these measures have helped increase the number of investors on these platforms.

On this, Shah said the Indian government is also laying a lot of emphasis on the development of a vibrant bond market, and SEBI is playing a crucial role in implementing regulations to make the market more accessible to retail investors.