Diversify your bond portfolio across credit ratings, issuers

Examine financials and repayment track record of each promoter

- SANJAY KUMAR SINGH & KARTHIK JEROME

The Securities Exchange Board of India (Sebi) has decided to reduce the minimum face value of privately placed nonconvertible debentures (NCDs) from 1 lakh to 10,000. The face value had earlier been lowered from 10 lakh to 1 lakh in October 2022. The bulk of all NCD offers take place through the private placement route. This is a landmark step that is expected to boost retail participation in the bond market.

With this measure, the regulator has lowered the entry barrier into the bond market. "Youngsters and those with lower amounts to invest will also be able to participate in it," says Vijay Kuppa, chief executive officer (CEO), InCred Money. A lower ticket size, according to him, will also allow such investors to build a more diversified portfolio.

Sebi has also proposed to standardise the record date to 15 days before the due date for payment of interest or principal. This means investors must hold the bonds at least 15 days before this date to be eligible for payment. "Until now, every issuer followed its own methodology. Standardisation will make the market more efficient and less complex," says Vishal Goenka, co-founder, IndiaBonds.com According to Kuppa, Sebi's stipulation that the issuer must appoint a merchant banker will ensure that retail investors' safety is not compromised.

Portfolio stability, regular cash flows

Bonds, which pay out coupons on fixed dates, are a good option for investors who want regular cash flows. They also offer the chance to earn stable but inflation-beating returns.