How corporate bonds can reach retail investors

livemint.com:

Over the last year, the Securities and Exchange Board of India (Sebi) has been working relentlessly to enhance the participation of retail investors in the corporate bonds market. It started in October 2022 with a circular titled ‘Reduction in denomination for debt securities and non-convertible redeemable preference shares’, whereby it reduced the minimum face value of listed debt securities under private placement from ₹10 lakh to ₹1 lakh. For the uninitiated, the ticket size of publicly issued bonds is ₹1,000. In November 2022, Sebi’s subsequent circular titled ‘Registration and Regulatory Framework for Online Bond Platform Providers (OBPPs)’ prohibited these providers from facilitating unlisted debt securities transactions to protect retail investors from liquidity risk in such investments.

While the right intentions guide Sebi’s regulations, there is still a lot of scope to increase the participation of retail investors in the corporate bonds space while protecting their interests. For example, the ticket size of privately placed corporate bonds is still much higher than what more retail investors can afford. Here are the four key reasons why this should be reduced even further:

Diversification challenges: Ideally, retail investors should allocate 5-10% of their portfolio to bonds to realize any meaningful gains. A higher ticket size restricts investors from diversifying across multiple bonds because even by investing ₹1 lakh, they can only buy a single bond unit. Even to invest ₹5 lakh in bonds, their overall investment portfolio should be around ₹25-50 lakh. Such a portfolio is only possible for those under the ₹25-50 lakh annual net income bracket. As per the financial year 2022-23 ITR filings data, only 500,000