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With rising interest rates, Indian bond markets today offer exciting investment opportunities. Government bonds for 5- to 10-year-terms are offering yields of about 7.2-7.4% while AAA-rated corporate bonds offer yields that top 8% p.a. Investing in bonds has traditionally been a cumbersome process for Indian investors. But new online bond platforms - regulated by SEBI - have greatly simplified the experience and opened up easy access to corporate bonds.
To understand what’s on offer on such platforms and how investors should choose suitable bonds, Aarati Krishnan, Consulting Editor with Business Line, spoke to Vishal Goenka, Co-Founder at Indiabonds.com. Indiabonds is one of the largest online bond platforms regulated by SEBI. Goenka, who is responsible for driving strategic growth and innovation at the platform, was earlier Managing Director at Deutsche Bank Singapore, Global Markets, and held leadership roles with Merrill Lynch and RBS. He has over 20 years of experience in global fixed-income markets.
In this insightful interaction, Vishal Goenka highlighted that investing in bonds via the exchanges has traditionally been tough for retail investors, because of the lack of ready information on the issuer, terms of the bond, the traded price (whether inclusive of interest or not) and so on. Online platforms like Indiabonds.com have made retail investments easier by presenting all the relevant information, including the information memorandum and the cash flows an investor can expect from a bond, in an easy format.
Asked how listed NCDs available on regulated bond platforms compare to other high-yield options like invoice discounting or peer-to-peer lending, Vishal cautioned that the two were not comparable at all. Invoice discounting is essentially lending to an unknown business based on its receivables and can be highly risky depending on how the underlying business fares. Characterising such products as “bull market instruments” Goenka cautioned that risks in such instruments can mount, should there be a blip or downturn in the economic or business cycle. Fixed income products such as invoice discounting are also not regulated. P2P lending is regulated to an extent by RBI, but it essentially represents lending to a pool of individuals whose risk profile may be difficult to assess. Listed NCDs bought from online bond platforms, in contrast, are SEBI-regulated products. They offer complete financial disclosures to the retail investor buying them.
Asked if listed NCDs are also frequently traded to enable early exit by the investor, Goenka pointed out that most fixed income products that retail investors have access to – whether bank FDs, NBFC FDs, NSC or post office schemes – usually come in with lock-in periods. Compared to these, listed NCDs at least allow the possibility of early exit, if trading volumes on the markets are sufficient. Exit could be available at a transparent if discounted price, should the investor seek liquidity. He also clarified that Indiabonds does its best to find counter-parties for premature sales, when investors who bought bonds from its platform look for early exit.
Asked how investors can navigate the risks that come with high-yielding bonds, he replied that unlisted bonds and bonds rated BBB etc could be avoided by retail investors to mitigate risks. If investing in lower rated corporate bonds, perpetual bonds or subordinated bonds of banks, investors ought to demand a higher premium for the risks in terms of the yield they are earning from the bond. Goenka suggested that retail investors making a start on bond investing can start with low-risk AAA issuers and experience a rate cycle, before moving on to lower-rated or perpetual options that entail more risk.
Tune into the podcast for this and many more insights.
(Host: Aarati Krishnan, Producer:Siddharth MC)
About the State of the Economy podcast
India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups.
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