Securities & Exchange Board of India (SEBI) on Tuesday decided to cut the face value of corporate bonds to ₹10,000 from ₹1 lakh at present, which is believed to enhance the participation of retail investors in the debt market.
Nithin Kamath had earlier spoke out against non-availability of bonds to retail investors. Bonds have been an HNI product, and no one sold them to retail, he had said.
Zerodha’s Nithin Kamath hails Sebi’s move that boosts retail participation in bond market
SEBI’s recent move to reduce the face value of corporate bonds has received praise from Nithin Kamath, the Co-founder of Zerodha, who believes that bonds, rather than stocks, are the right stepping stone for most Indians as they give better returns than fixed deposits with lower risk than stocks.
Capital market regulator Securities & Exchange Board of India (SEBI) on Tuesday decided to cut the face value of corporate bonds to ₹10,000 from ₹1 lakh at present, which is believed to enhance the participation of retail investors in the debt market.
“Companies can now issue bonds with face value of ₹10,000. This is a great move that can help attract retail participation in the bonds. With all the changes in the last few years, SEBI has done an amazing job of making bonds accessible to small investors,” Kamath wrote in a post on X.
Kamath had earlier spoke out against non-availability of bonds to retail investors. Bonds have been an HNI product, and no one sold them to retail, he had said.
“There were two big issues: 1. Availability of bonds with small face values. Most bonds are issued through private placements and have face values of ₹10 lakh+. So retail investors were priced out. 2. All bond deals had to be settled through the clearing corporations, and they only accepted RTGS as a payment mode. So the minimum transaction size became ₹2 lakh + by default,” Kamath wrote in January 2023.
However, Sebi has made some key changes that make it easy for retail investors to invest in corporate bonds, he noted.
Apart from lowering the denomination, Sebi has standardised the record date for identifying eligible holders, harmonised the format of the due diligence certificate provided by the debenture trustee and provided flexibility regarding publication of financial results in newspapers for entities that have listed only non-convertible securities.
Sebi board also approved the proposal to provide an option to the issuers to issue NCDs or NCRPS through private placement mode at a reduced face value of ₹10,000 along with the requirement to appoint a merchant banker.
Such non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) should be plain vanilla, interest or dividend-bearing instruments. However, credit enhancements would be permitted in such instruments.
Zerodha’s Nithin Kamath hails Sebi’s move that boosts retail participation in bond market
The regulator also approved the proposal that the record date for the payment of interest repayment of principal of debt securities or NCRPS should be 15 days prior to the due dates of such payment obligations.
Sebi has also standardised the record date for identifying eligible holders as well as the format of the due diligence certificate provided by the debenture trustee and provided flexibility regarding publication of financial results in newspapers for entities that have listed only non-convertible securities.
The Sebi board has also approved the proposal to provide an option to the issuers to issue non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) through private placement mode at a reduced face value of Rs 10,000 along with the requirement to appoint a merchant banker.
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