What keeps retail investors on the sidelines?

THE INDIAN FINANCIAL markets have witnessed significant growth over the years supported by the increased enthusiasm shown by retail investors in the equity market.

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The bond market, however, has not seen that kind of participation from individual investors. Retail participation is in low single digits— market players put it below 4%.

Awareness is the biggest challenge for retail investors when it comes to investing in the bond market. They often find it difficult to understand the nuances of the bond market and its risk-return dynamics. Unlike equities, which most investors find easier to comprehend, bonds come with intricate concepts such as coupon rates, yields, credit ratings and maturity periods. Mostly, they are not aware of the benefits of investments in debt and how these will help them to diversify their portfolio. In addition, investor access to the bond market, especially the secondary market, remains very limited. Investors also prefer to go after the higher returns offered by the equity market instead of the stable returns from bonds.

Secondary market liquidity is still a concern

UNLIKE EQUITIES, BONDS are not liquid thus making exit difficult for retail investors. In case of corporate bonds, only AAA-rated bonds or those by select top-rated issuers easily find buyers in the secondary market.