Should you invest in corporate bonds through new platforms?

Even as interest rates are at a low today, bond investors have something to cheer about. 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 bounds for many small investors.

Multiple platforms

Launched in November 2021 by JM Financial Products, Bondskart is the newest of these platforms. BondsIndia, launched two months ago, is backed by Launchpad Fintech, a SEBI registered wholesale debt market broker. Both these platforms come under RBI and SEBI regulations. They hold an inventory of bonds from several issuers that are made available for sale 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 on them may be limited.

What’s on offer

All the fixed income platforms offer a wide bouquet of corporate bonds issued by both public sector and private sector entities, with a varied maturity and credit ratings profile. The bonds are categorized based on several parameters such as credit ratings, short or long term, tax-free or taxable and type of issuer, for easy selection.

For every bond, you can see the current market price, the coupon rate, the yield to maturity (your return, if a bond is held till maturity), maturity date and the expected cash flows through the tenure of the bond. These platforms provide, to varying degrees, information on the bond issuer.

When you buy / sell bonds on these platforms, the transaction gets reflected in your demat account (with any broker) that has been linked to the platform. To transact on Axis Direct YIELD, however, you require an Axis Direct account.

Initiate the process

In case of Axis Direct YIELD, once you complete the process for opening an Axis Direct account (or already have one), you get automatic access to it. Both Bondskart and BondsIndia require you to complete KYC (know your customer) to commence transacting on the platforms.

However, if to start with, you only want to browse through the bonds available on the two platforms, you simply need to do a quick sign up without any KYC.

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

Once you complete the formalities, you can commence transacting on these platforms. You do not have to pay any transaction charges. Platforms such as Bondskart and BondsIndia make money by way of interest earned on the inventory of bonds held by them and the differential earned from wholesale buying and retail selling of bonds.

Also read: Decoding the new way to invest in G-secs

Points to note

To buy bonds on Bondskart, you must 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 deal sheet.

On order confirmation, the money is transferred via RTGS from your bank account to the stock exchange’s bond platform.

Thereafter, bonds are transferred from Bondskart to the exchange’s bond platform for transfer to your demat account. The routing of the transaction through the exchange (instead of between the platform and the investor) helps ensure that there is no counter party risk.

BondsIndia too follows a similar process for transactions of ₹2 lakh and above. In case of lower value transactions, the transfer of money and bonds is conducted between BondsIndia and the investor directly, though the transaction has to still be reported to the exchanges.

On BondsIndia, you need to buy a minimum of 1 unit of any bond, irrespective of how small or large the investment amount. Axis Direct YIELD too 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 both Bondskart and BondsIndia since the bonds displayed for sale on their website are backed by an inventory, buy orders are executed smoothly. Likewise, when an investor wants to sell bonds, Bondskart itself purchases the bonds that are being put for sale. BondsIndia facilitates the sale by arranging buyers or itself buying the bonds.

According to Axis Direct, which does not hold an inventory of bonds on its books, it gets in touch with bond houses to execute deals 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’s no getting around doing some due diligence on the bond issuers themselves (and not just on the transacting platform) before you invest.