Online Bond Platform Providers: Secured Pathways To New-Age Investment
Investment portfolio diversification always attracts an investor’s attention. Anyone who is even a bit conscious about personal finance management knows that risk optimisation is crucial to building a healthy portfolio. A majority of Indians prefer secured investment schemes over higher returns in comparison to other nations. However, the rise of bonds offering attractive returns at lower risk is changing the way we invest.
With the rise of secure and easy-to-operate online bond platform providers (OBPP), diversification is proving to be easy even for those who are not well-versed in the Indian financial markets. Let’s know all about these investment platforms and opportunities.
Where Do The Indians Invest The Most?
As per the RBI report, an average Indian preferred to invest 85% of his wealth in physical assets like real estate followed by an 11% allocation to gold1. This left less than 5% of his funds to explore the probability of financial assets like fixed deposits, stock markets, government and corporate bonds, and alternative investment options. Contrarily, individuals from developed nations like the US, UK, Germany, etc. prefer to keep a balanced portfolio with a comparable focus on financial assets and retirement accounts.
While the former are great investment tools in the long term they are marred by lower liquidity, less scope of diversification, and lower return on investments (RoI) when compared to the latter. The report also highlights the reason for less participation in financial assets despite better returns to the availability of resources, lack of digital awareness, and limited financial literacy.
Recently, we have observed a significant rise in the number of stock brokers and online bond-providing platforms indicating a shift in investors’ mindset. According to a survey conducted by LocalCircles, a community platform, on 47,000 people, nearly 40% of respondents planned to invest in stocks and mutual funds with only 15% of them investing in tangible assets like property and jewellery2.
Who Are The Online Bond Platform Providers?
Online Bond Platform Providers are SEBI-authorized companies that provide retail investors with a secure gateway to invest money in bonds. OBPPs usually comprise stock brokers and fintech(s) who could offer comprehensive e-platforms to secure transactions in fixed-income instruments like bonds to low-ticket size investors.
The Chief Investment Officer of Public Investing at Goldman Sachs recently highlighted the inherent strength bonds provided to the US economy after the Silicon Valley fiasco3. As per the report, slower economic growth has reinforced the 60:40:: stocks: bonds portfolio strategy, a trend we are observing in India also.
SEBI’s Take On Online Bond Platform Providers
With improving investors’ sentiments towards bonds, it is imperative that the Indian market regulator, SEBI, enforces laws to ensure transparency and protection to its non-institutional investors by bringing online bond platforms (OBPs) under its purview. On 16 June 2023, SEBI issued a circular to ensure adherence to its earlier provisions for issuing and listing non-convertible securities by OBPs4. Here’s a summary of SEBI’s guidelines for OBPs in India vide circular no. SEBI/HO/DDHS/DDHS-RACPOD1/P/CIR/2022/154 attempts to make investing in debt instruments like bonds more secure in India5:
1. Any entity desirous of acting as an OBPP should be registered in India and listed as a stockbroker in the debt segment of the stock exchange.
The step ensures secured transactions and appropriate actions under the law in case an entity defaults.
2. Such an entity should only deal in either listed or proposed to be listed through public offering debt securities.
Investments in only listed or proposed to-be-listed debt securities ensure greater transparency of information on the issuer to non-institutional investors.
3. An OBPP should appoint a Company Secretary as a compliance officer.
The step is essential as a first step towards adherence to internal and external regulations. It ensures that any disruptions will be dealt with, with utmost urgency and as per the law.
4. It should obtain SEBI Complaints Redress System (SCORES) authentication and develop a well-defined mechanism to address investors’ grievances that may or are likely to arise while carrying out OBP operations.
It is SEBI’s priority to deal with investors’ complaints in minimum time. The adoption of SCORES allows grievances to be filled online and hassle-free. SCORES help in reducing grievance redressal time since all the parties are aggregated at one platform.
5. The OBP must own, operate, and maintain robust technology infrastructure for an error-free investing experience.
The requisite allows for a greater degree of reliability, scalability, availability, and security regarding its systems, data, and network. It is necessary to support its operations and manage the associated risks.
6. The OBP should ensure fair access and participation along with data governance, integrity, and privacy.
Operational transparency is the name of the game when it comes to money matters. SEBI ensures that every investment opportunity available with an OBP should be open to all non-institutional investors without any bias. Further, it should be the responsibility of the OBP that investors’ data is kept private and protected from any kind of data breach.
Key Criteria To Choose Your Preferred OBPP
Now that the SEBI regulations are in circulation, it is easy to select a reliable and secure OBPP for your investments in bonds. Some platforms like Grip offer an additional safety cushion of ensuring the curation of the bonds based on stringent financial criteria. The key benefits of investing with Grip are:
- User-friendly interface
- No hidden charges
- Curated bonds based on financial and credit quality criteria
- Diversified options to choose from based on your investment capital and risk appetite
- Detailed coverage of the financial health of the issuer and the seller to help you make an informed decision.
With changing investment trends towards non-market linked bonds, the operational efficiency of OBPPs needs to be in line with financial regulations. The regulatory framework laid down by SEBI is a welcoming step that is bound to strengthen investors’ confidence and benefit from the booming bond markets.
To know more about which corporate bonds are best to invest in 2023, click here!
Conclusion
The online bond platform provides an easy and secure way for non-institutional investors to diversify their portfolios by investing in non-market-linked financial assets like corporate bonds. The latest regulatory guidelines issued by SEBI bring investments in such debt securities under its directive. This is a positive step towards instilling investors’ confidence in the flourishing debt financing markets. As a retail investor, you should follow SEBI’s latest guidelines and choose the best OBPP for a satisfying investment experience.
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FAQ
- Should I Invest In Bonds?
Investing in bonds could be a good idea if you are looking for portfolio diversification and better returns than fixed deposits. Please consult with your financial advisor and choose only reliable online platforms for investing.
- What Are The Advantages Of Investing In Corporate Bonds?
Corporate bonds provide many advantages to enrich one’s diversified portfolio like a source of fixed and regular income, higher returns than fixed deposits, reduced volatility, and better security.
- What Are The Steps For Investing In Bonds Through OBPPs?
Investing in bonds through OBPPs is a secured and easy 3-step process:
a. Login at the portal of SEBI-compliant OBPP
b. Complete your KYC
c. Review the investment opportunities and invest
References:
- Reserve Bank of India <https://tinyurl.com/6e59wwwf>
- Local Circles <https://tinyurl.com/48wmzszm>
- Goldman Sachs <https://tinyurl.com/s6my4n5z>
- Securities and Exchange Board of India (SEBI) <https://tinyurl.com/4u3r9arw>
- Securities and Exchange Board of India (SEBI) <https://tinyurl.com/y2jrhyuw>
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Disclaimer: This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip Invest Technologies Private Limited ("Grip", formerly known as Grip Invest Advisors Private Limited) is not registered with SEBI in any capacity and does not advise, encourage, or discourage its users to invest or not invest in any securities. Grip is solely an execution-only platform and does not guarantee or assure any return on investments made by you in any opportunities sourced by Grip and accepts no liability for consequences of any actions taken based on the information provided. Your investment is solely based on your judgement. Investments in debt securities are subject to risks. Read all the offer related documents carefully.
