 "Corporate bond ticket size slashed: What does it mean for retail investors?")
The Securities and Exchange Board of India (Sebi) has recently proposed to reduce the minimum investment amount for corporate bonds from Rs 100,000 to just Rs 10,000. In October 2022, the Sebi had reduced the face value of corporate bonds to Rs 1 lakh from Rs 10 lakh.
What are corporate bonds?
Corporate bonds are debt securities issued by companies to raise funds for various purposes, such as expansion, debt refinancing, or working capital requirements. They offer periodic interest payments (coupons) and the repayment of the principal amount upon maturity, providing investors with a steady stream of income.
What does the reduction in ticket size mean for retail investors?
The corporate bond market has traditionally been dominated by institutional investors, such as banks, mutual funds, and high-net-worth individuals. However, with the new regulation, retail investors will have the opportunity to participate in this lucrative asset class, which has long been perceived as the exclusive domain of larger players.
Talking to Business Standard, Nikunj Saraf, Vice President at Choice Wealth said, “With the new lower ticket size, retail investors with an appropriate asset allocation to fixed income can now invest in bonds without concern. This change opens the corporate bond market to a broader range of investors, previously dominated by institutional and high-net-worth individuals due to the high entry thresholds.”
The Rs 10,000 ticket size is expected to increase market liquidity, resulting in more buyers and sellers of bonds. This enhanced liquidity will allow investors to liquidate their holdings at favourable prices and times, he said.
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Increased retail participation is anticipated to create a more dynamic and resilient corporate bond market in India. This could stimulate more bond issuances and active secondary market trading, further benefiting the overall financial market landscape.
Bond investors should consider the following key factors before investing
Issuer type: The nature of the bond issuer (government, public sector, private sector) can influence the risk profile and yield expectations of the investment.
Credit rating: The default risk associated with corporate bonds depends on the issuer’s creditworthiness, which is determined by the credit rating. Investors should check the credit ratings with Sebi-registered rating agencies
Liquidity: Liquidity refers to the ease of buying and selling bonds in the secondary market. Government bonds and bonds issued by high-quality issuers tend to have better liquidity than those issued by lesser-known entities.
Maturity profile: Investors should consider the maturity profile of their bond investments and align it with their investment goals and risk appetite. Long-term bonds tend to be more sensitive to interest rate changes, while shorter-term bonds offer more predictable returns but may need to be reinvested more frequently.