SEBI makes bond market more
accessible, Zerodha's Kamath hails move
Nitin Kamath, co founder of Zerodha, has praised market regulator
Sebi's recent move to reduce the face value of corporate bonds to Rs. 10,000
from Rs. 1 lakh at present, which is believed to enhance the participation of
retail investors in the debt market.
"Companies can now issue bonds with face value of Rs. 10,000.
This is a great move that can help attract retail participation in the bonds.
With all the changes in the last few years, SEBI has done an amazing job of
making bonds accessible to small investors," said Kamath in a tweet.
Kamath had earlier spoke out against non-availability of bonds to retail
investors. Bonds have been an HNI product, and no one sold them to retail, he
had said.
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 ₹10 lakh. 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," Kamath had written in January 2023.
Traditionally, investing in corporate bonds in India has been out
of reach for many retail investors due to the high minimum investment amount.
Most corporate bonds have a face value (minimum investment amount) of Rs. 1
lakh (around $1250). This large initial investment excludes many smaller
investors who might be interested in the benefits of bonds.
SEBI's solution: Lowering the entry barrier
SEBI has approved a proposal to significantly reduce the minimum
investment amount for corporate bonds issued in India. The new face value will
be Rs. 10,000 (around $125).
Benefits of the change:
Increased accessibility: This reduction makes bond investments
much more attractive and accessible to a wider range of retail investors.
Portfolio diversification: Retail investors can now
more easily include bonds in their portfolios, which can offer benefits like
stable income and lower volatility compared to stocks.
Potential Growth: Increased participation
from retail investors could lead to a more vibrant and dynamic bond market in
India.
SEBI's recent changes aim to simplify and streamline the process
of issuing and managing Non-Convertible Debentures (NCDs) in India. Here's a
breakdown of what each change means:
1. Lower Denomination:
This is the most straightforward change. SEBI has reduced the
minimum investment amount for NCDs. This makes them more accessible to smaller
investors who previously couldn't afford the higher minimums.
2. Standardized record date:
Previously, the date for determining who is eligible to receive
interest or principal repayments on NCDs (record date) could vary depending on
the issuer. SEBI has now standardized the record date. This simplifies the
process for both issuers and investors, as everyone knows the exact date used
to determine eligibility.
3. Harmonized due diligence certificate format:
A debenture trustee is an independent third party that oversees
the issuance and repayment of NCDs. They also provide a due diligence certificate
which assesses the issuer's financial health and ability to meet its
obligations. SEBI has standardized the format of this certificate. This ensures
consistency and clarity in the information provided, making it easier for
investors to compare and evaluate different NCD offerings.
4. Flexibility in publishing financial results:
Traditionally, companies issuing NCDs had to publish their
financial results in newspapers. This can be expensive and time-consuming. SEBI
now allows flexibility for companies that only have non-convertible securities
listed (like NCDs). These companies can now choose alternative methods for
disseminating their financial results, potentially reducing costs and
bureaucratic burdens.
SEBI said that its board approved the proposal to provide an
option to the issuers to issue NCDs or NCRPS through private placement mode at
a reduced face value of Rs. 10,000 along with the requirement to appoint a
merchant banker.
What investors should consider?
Research is Key: Just like with any investment, proper research on
the specific bond and the issuing company is crucial before investing.
Investment Goals: Bonds are generally considered less risky than
stocks, but also offer lower potential returns. Investors should consider their
risk tolerance and investment goals when deciding if bonds are a good fit for
their portfolio.
www.business-standard.com
dt. 02.05.2024