Corporate bonds

Should we invest in corporate bonds via new platforms?

Even though interest rates are at rock bottom today, bond investors have reason to rejoice. With the recent emergence of many fixed income platforms such as Bondskart, BondsIndia and Axis Direct YIELD, investing in a wide variety of corporate bonds has become easier for retail investors. However, a minimum investment requirement of ₹2 lakh on some of these platforms makes them out of reach for many small investors.

Multiple platforms

Launched in November 2021 by JM Financial Products, Bondskart is the most recent of these platforms. BondsIndia, launched two months ago, is backed by Launchpad Fintech, a SEBI-registered wholesale debt market broker. Both of these platforms fall under RBI and SEBI regulations. They hold an inventory of bonds from several issuers which are made available to investors.

In addition to these platforms, you can also invest in bonds through a trading account with your broker. However, the range of bonds available and the information provided about them may be limited.

What is offered

All fixed income platforms offer a wide range of corporate bonds issued by public and private sector entities, with a variety of maturity profiles and credit ratings. Bonds are classified according to several parameters such as credit ratings, short or long term, tax exempt or taxable and type of issuer, for easy selection.

For each bond, you can see the current market price, coupon rate, yield to maturity (your yield, if a bond is held to maturity), maturity date, and cash flows. cash expected over the life of the bond. These platforms provide, to varying degrees, information about the issuer of the bond.

When you buy/sell bonds on these platforms, the transaction is reflected in your demat account (with any broker) which has been linked to the platform. However, to transact on Axis Direct YIELD, you need an Axis Direct account.

Start the process

In the case of Axis Direct YIELD, once you have completed the process of opening an Axis Direct account (or already have one), you are automatically granted access. Bondskart and BondsIndia require you to complete KYC (know your customer) to start trading on the platforms.

However, if to start you only want to browse the links available on both platforms, all you need to do is register quickly without any KYC.

KYC involves providing standard information such as PAN, Aadhaar, demat and bank account details. BondsIndia asks you to fill in the details and Bondskart asks you to submit scanned copies of these documents along with your photo to initiate KYC. The entire process is performed online and does not require physical submission of documents.

Once the formalities are completed, you can start trading on these platforms. You don’t have to pay transaction fees. Platforms such as Bondskart and BondsIndia make money from the interest earned on the inventory of bonds they hold and the differential earned from the wholesale buying and selling of bonds.

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Points to note

To buy bonds on Bondskart, you need to place a minimum order of ₹2 lakh, which is the same as the minimum amount for an RTGS (real-time gross settlement) transaction. Once you place the order, you get the transaction sheet.

Upon confirmation of the order, the money is transferred via RTGS from your bank account to the bond platform of the exchange.

Subsequently, the bonds are transferred from Bondskart to the exchange’s bond platform to be transferred to your demat account. Routing the transaction through the exchange (instead of between the platform and the investor) helps ensure that there is no counterparty risk.

BondsIndia also follows a similar process for transactions of ₹2 lakh and above. In the case of lower value transactions, the transfer of money and bonds is made directly between BondsIndia and the investor, although the transaction must still be reported to the stock exchanges.

On BondsIndia, you must buy at least 1 unit of any bond, regardless of the investment amount. Axis Direct YIELD also requires a minimum investment of ₹2 lakh.

When it comes to buying and selling bonds, unlike stocks, adequate liquidity is often a concern. However, according to Bondskart and BondsIndia, since the bonds displayed for sale on their website are backed by inventory, buy orders are filled without issue. Similarly, when an investor wants to sell bonds, Bondskart itself buys the bonds that are offered for sale. BondsIndia facilitates the sale by arranging buyers or buying the bonds itself.

According to Axis Direct, which does not hold bond inventory on its books, it contacts bond houses to execute trades whenever a sell order is placed.

Finally, it bears repeating – while buying and selling bonds seems to have become easier thanks to many fixed income platforms, there is no way to do due diligence on issuers. of bonds themselves (and not just on the trading platform) before investing.