Is a bond platform a good option for retail investors?

Most of the Indians are not familiar with the concept of buying bonds directly. Fixed deposits are the most common fixed income instrument, followed by debt mutual fund, Some investors are familiar with the tax-free bonds of PSUs, but new tax-free bonds have not been issued by the government in many years. Capital Gains Tax Savings Bonds are another familiar instrument under Section 54 EC of the Income Tax Act, 1961. But they are also available for a specific purpose – to save capital gains tax for someone who has made a capital gain, for example by selling a property. Past instances of aggressive selling of direct bonds to investors have left a bad taste for some, such as buyers of DHFL bonds or perpetual bonds of Yes Bank. Both issuers defaulted and a resolution plan for the latter wiped out the bond holders’ claims.

Despite these examples, bond market players feel that the appetite for direct retail investment in bonds is ripe. Three major private sector bond platforms have been launched in recent years, Ultifi by Northern Ark, Bondkart by JM Financial and Vint Wealth, whose platform goes by the same name. Most of these players are essentially brokers. Credavenue, the fourth platform that also offers bond trading, is more focused on corporates, banks and high net worth individuals. They sell bonds to retail investors that they hold (called props or proprietary book holdings). In some cases, they may not have the bond in question, and so they buy it from the market. Every platform is different. For example, Vint Wealth focuses on relatively high-risk bonds from NBFCs. ‘Covered Bonds’ are an innovative structure that seeks to reduce investor risk and therefore enhances the ratings usually given by Vint Wealth. The recent RBI regulations seem to have decimated the market for covered bonds and Vint Wealth has moved to ‘senior unsecured bonds’.

However, the platforms focus on certain specific selling points (USPs). First, they demonstrate an end-to-end digital process where investors can buy bonds from the comfort of their home, just as they trade in stocks. Bondkart comes with an app in addition to website presence. Second, they allow for ‘bite-sized’ investments. On the bond platforms of stock exchanges like BSE and NSE, trading takes place in many 5 crore or more, essentially cutting off retail investors. The latter can trade in ‘odd lots’ but there is poor liquidity. The platforms claim to offer investors the ability to buy and sell in small amounts of a few lakh rupees. Third, they claim to provide investors with a ‘curated experience’ where the truly risky bonds have been weeded out. According to JM Financial, the focus will be on AAA and AA bonds.

“The market has deepened with the creation of a new bond platform and hence it is welcome. However, I do not think retail investors should directly invest in bonds, given the liquidity crunch and price performance risk, unless the intention is to maintain maturity. Bond trading is not that easy to understand,” said Rupali Prabhu, Chief Investment Officer, Sanctum Wealth Management.

Apart from the first claim, the rest can only be verified over time. It is not clear whether the platforms will actually provide the liquidity they offer.

As far as curation is concerned, there is no legal duty of investors on the platform and hence there is no obligation on them to exercise extreme caution.

Vint’s new bond issue

Vint Wealth has partnered with Ugro Capital to raise 50 crore non-convertible debentures of maturity of 27 months have been issued by UGRO at a coupon of more than 10%, received from investors. They will be amortized (repaid) every nine months to the extent of 33% so that investors do not have to wait till maturity to get back the capital. Vint and its ‘warehousing’ partners buy bonds in the primary market and will sell them to investors in the secondary market through stock exchanges.

Investors can invest at least 1,000. Bonds are senior unsecured debentures, meaning they are backed by assets, in this case a loan against the asset, if Ugro cannot pay. the stage is up 100 crores in other issues so far since its launch in 2020 and says it hasn’t faced any default as of now. It said that 6,000 investors and 43,000 users have expressed interest. SEBI norms which have made a . carried away According to Vint, the minimum issue size of 100 crores for public issues of debt has paved the way for similar offerings.