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Is a fixed income platform a good option for individual investors?

The idea of ​​high interest income is fascinating for Indians, especially retired people who are accustomed to fixed deposits. A range of private sector players are trying to harness this demand by launching a “bond platform” that allows individual investors to buy bonds directly. The RBI Retail Direct platform also addresses this need.

Most Indians are not familiar with the concept of buying bonds directly. Fixed income is the most common fixed income product, followed by debt mutual funds. Some investors are familiar with tax exemption bonds from PSU, but the government hasn’t issued new tax exemption bonds for several years. Capital gains tax-saving bonds under Section 54 EC of the Income Tax Act of 1961 are another well-known tool. However, they can also be used for specific purposes. For example, to save capital gains tax on those who suffer capital gains by selling real estate. Past cases of the aggressive sale of direct bonds to investors have left a disgusting taste for some, such as DHFL bond buyers and Yes Bank perpetual bonds. .. Both issuers defaulted and the latter resolution scheme wiped out bondholder claims.

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Despite these cases, fixed income market players feel enthusiastic about direct retail investment in fixed income. The three major fixed income platforms in the private sector that have been launched in recent years are Northern Arc’s Altifi, JM Financial’s Bondskart and Wint Wealth. With the same name. Most of these players are essentially brokers. Credavenue, the fourth platform that also facilitates fixed income trading, focuses on businesses, banks and high net worth individuals. They sell their own bonds (called holdings of props or proprietary books) to individual investors. In some cases, you don’t have the bond in question, so you procure it from the market. Each platform is different. For example, Wintwells focuses on relatively high-risk bonds from NBFC. “Covered Bonds” are innovative structures aimed at reducing investor risk and strengthening the ratings commonly offered by Wintwells. Recent RBI rules seem to have put an end to the covered bond market, and Wintwells has shifted its focus to “senior unsecured bonds.”

However, the platform focuses on some unique selling points (USPs). First, we’ll show you an end-to-end digital process that allows you to buy bonds from the comfort of your home, much like an investor trades stocks. Bondskart comes with an app in addition to the existence of a website. Second, they allow for “bite-sized” investments. On stock exchange bond platforms like BSE and NSE, transactions take place in many places. Over 500 million rupees, essentially eliminating individual investors. The latter can be traded in “odd lots” but tends to be less liquid. The platform claims to provide investors with the ability to buy and sell in small quantities of a few rupees. Third, they claim to provide investors with a “curated experience” where truly dangerous bonds are screened. According to JM Financial, the focus will be on AAA and AA bonds.

“Creating a new fixed income platform is welcomed as it deepens the market. However, given the lack of liquidity and the risk of price performance, individual investors invest directly in fixed income unless they intend to maintain maturity. I don’t think it should be. Bond trading isn’t that easy to understand, “said Roopali Prabhu, Chief Investor Officer at Sanctum Wealth Management.

Apart from the first claim, the rest can only be verified over time. It is unclear whether the platform will actually provide the liquidity it offers.

As far as curation is concerned, the Platform has no legal fiduciary duty to investors and is not obliged to exercise maximum due diligence.

Wint’s new bond issuance

Wint Wealth procured in partnership with UGro Capital 5 billion rupees from investors. UGro has issued a 27-month non-convertible bond issued with a coupon of just over 10%. They are amortized (repayed) in the range of 33% every 9 months, so investors do not have to wait until maturity to regain capital. Wint and its “warehouse” partners will buy bonds in the primary market and sell them to investors in the secondary market through the stock exchange.

Investors can only make a small investment 1,000. Bonds are senior unsecured corporate bonds. That is, it is backed by a loan to the asset, in this case real estate, in case UGro cannot pay.Platform has risen Since its launch in 2020, it has said that it has been rupees 10 billion so far on other issues and has not faced a default so far. 6,000 investors and 43,000 users are showing interest.Sevi norms that abolished According to Wint, the minimum issuance size for public debt is Rs 10 billion, paving the way for similar services.

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Is a fixed income platform a good option for individual investors?

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