Will it become easier to invest in bonds in India?

To increase individual participation, RBI has launched a government bond portal to enable investors to buy government bonds at rock-bottom prices. INR10,000. Sebi has also come up with guidelines to reduce the regulatory framework for online bond platforms and the minimum denomination of corporate bonds. INRHundred thousand. However, these measures still count as a phased approach.

One way to make it work is to act in a holistic manner and address most of the root causes of India's deteriorating bond market performance. And with the agreement of all stakeholders, including regulators, this is not that difficult.

The comfort of depositing is a result of the ease of transactions and low minimum amounts.Currently, the starting face value of bonds is INR1,000. Regulators should try to lower the face value of all bonds. INR100. The next step is to eliminate multiple accounts and module registration. Regulators should work towards moving to a single issuance mode, preferably a non-issuance mode. India has one of the best market infrastructures that is already tested and widely used, combining trading, demat and bank accounts. These can be used in conjunction with features like ASBA (Applications Supported by Blocked Amount) to facilitate access.

Another step is to increase investor awareness and increase transparency. Exchanges and online bond platforms provide clear information such as rating, type, price/yield linkage, built-in but unpaid interest, and easy calculators to calculate the settlement amount at a particular price or yield. should be instructed to display relevant information. It also makes it easy to see bond prices and trading history with the option to filter historical market data by various variables such as bond type, issuer, and ISIN (International Securities Identification Number). is needed.

The final and most important step is to increase two-way activity and depth in the bond market. He can think of three ways to approach this. First, try consolidating corporate bond issuance into fewer ISINs. RBI has done a great job of consolidating all outstanding government bonds into just 100 of his ISINs. But they haven't been able to replicate the same success with state bonds. Corporate bonds are completely underperforming in this area.

Second, top government and corporate bond arrangers will be appointed as market makers, with the primary purpose of providing two-way quotes for lower tick size bonds. Also, market makers need to be appropriately incentivized with continuous monitoring and supervision by RBI and Sebi.

Finally, India's current market structure is highly asymmetric. Most of the large participants like LIC, other insurance companies, EPFO, NPS Trusts, PF and other retirement trusts are 'hold to maturity' investors. On the other hand, very few participants are active investors, such as mutual funds or banks. This equation results in poor market formation and reduced secondary market liquidity. Fostering an ecosystem of fixed income-oriented PMS, AlF, credit and structured debt funds, as well as creating a favorable regulatory framework that allows all participants to buy and sell seamlessly, could help tip the balance in their favor. There is a gender.

In summary, a holistic approach can help completely overcome the long-standing inertia instilled in investors buying bonds in India.

Bhupendra Meel is a portfolio manager in the private banking division of a multinational bank.

The views expressed in this column are personal.