To provide some context, a total of 45 NCD corporate public issues were conducted by 25 issuers, raising Rs 19,167 crores (+2.08x growth YoY as per SEBI) in FY 2023-24. The outstanding corporate bond market now stands at US$ 576 billion. Many smaller companies are now able to raise funds from debt capital markets via public issues directed at retail investors. Several factors are driving this shift, and in the long term, it will create a ripple effect on the country’s economy, how issuers release new NCDs, and the overall development of India’s debt market.
Why the Rise?
The surge in retail participation is largely driven by the emergence of SEBI-regulated Online Bond Platform Providers (OBPPs), combined with proactive regulatory enhancements. These platforms have democratized access to bonds, allowing retail investors to make their mark in what was once an opaque, institution-dominated process, making it as simple as buying stocks with just a few clicks. Today, platforms like IndiaBonds harness technology to disseminate information and provide easy access to bonds, enabling investors to purchase them in a few minutes with absolute transparency.However, despite the massive market size, retail participation remains surprisingly low—less than 2% (Source: NSDL). This stark underrepresentation highlights a vast untapped potential, and as technology, education, and regulatory support continue to converge, retail investors are set to play a pivotal role in the future of India’s bond market.Factors Influencing Retail Participation in the Bond Market
1. The Rise of OBPPs
SEBI introduced the OBPP framework in 2022, and since then, a series of circulars defining disclosure norms, compliance policies, reductions in bond face value, and liquidity windows have been introduced. Online Bond Platforms have positively transformed the bond market by lowering the barriers to entry that previously restricted retail investors. The formation of the OBPP Association of India, led by market participants, is fast-tracking the development of a vibrant bond industry that caters to the participation of retail investors.
2. A Robust Regulatory Environment
The regulatory framework established by SEBI has been crucial in fostering trust and safety for retail bond investors. SEBI’s proactive steps, such as mandating that all OBPPs must be SEBI-registered stockbrokers with an additional license to operate, ensure investor protection. Creating appropriate digital infrastructure through stock exchanges, clearing houses, and payment gateways has enabled bonds to be bought online in just minutes, empowering retail investors to participate confidently in the debt market.
3. Wealth Creation and Diversification
Wealth creation in India has accelerated due to economic growth and a burgeoning stock market. As India’s wealth creation continues to rise, investors need more avenues to park their capital.
With real estate, the equity market, and other traditional assets reaching lifetime highs, the need for portfolio diversification has never been more pressing.
Bonds, offering stable and predictable income, have emerged as an appealing alternative. Investors have gained experience in financial markets, as evidenced by the number of demat accounts growing to 175 million (Source: ET). This savvy new wave of retail investors increasingly seeks diversified investments—bonds serve as a low-risk, long-term option.
4. Technology Penetration
According to RBI data, India accounted for 46% of the world’s digital transactions, a testament to the country’s technological prowess. With AI and technology driving innovation, the financial services sector has recently experienced significant growth. OBPP platforms have rapidly emerged over the past three years, placing bonds in the hands of investors and offering a variety of options. This behavioral shift is leading to rapid education coupled with easy access to fixed-income investments.
Democratization of the Bond Market
The democratization of the bond market has opened up new avenues for growth, with high-yielding companies increasingly relying on retail participation for bond issuances. This shift is partly driven by restrictions on bank lending to NBFCs and their desire to diversify their investor base. As a result, CFOs are now focusing on the retail segment, dedicating time and resources to tap into this pool of capital. Platforms like IndiaBonds have been instrumental in this transformation, offering educational initiatives such as fixed-income webinars in collaboration with NISM (a SEBI initiative).
Global democratization has occurred by including Indian fixed income in global indices like JP Morgan, Bloomberg, and FTSE Russell, which has significantly boosted the demand for bond products. Global investors typically begin with government bonds and then move down the credit spectrum to corporate bonds. This investor class is set to play a crucial role in the market. With a steady government yield curve, companies find it easier to issue bonds at a spread over this stable, risk-free benchmark.
Benefits of Increased Retail Participation
1. Issuer’s Perspective
The increasing number of retail investors presents a significant opportunity for issuers seeking to raise funds through debt. Expanding their investor base beyond institutional players makes capital-raising efforts more competitive and cost-effective. Retail investors, recognized for their long-term holding tendencies, contribute stability and enhance liquidity—both of which are crucial for a well-functioning bond market.
2. Retail Investor’s Perspective
For retail investors, bonds represent a safer alternative to volatile equity markets and low-yielding fixed deposits. They offer a predictable income stream and the flexibility to meet specific investment goals, such as preserving capital or generating regular income. As Online Bond Platform Providers (OBPPs) continue to enhance the accessibility of bonds, they become an attractive diversification option for retail investors seeking lower-risk assets.
3. Economic Growth
The rise of retail participation is vital for India’s economic growth. A liquid and vibrant bond market facilitates efficient capital raising, which is essential for financing critical infrastructure and development projects. As India evolves into a $6-8 trillion economy, retail investors will play a key role in ensuring that the country’s capital needs are met through a thriving debt capital market.
Challenges That Still Remain
Despite the rapid rise in retail participation, several challenges persist. Awareness and education are significant hurdles, as many retail investors remain unaware of the benefits of bonds and lack access to consistent financial education. Additionally, the bond market’s fragmentation across various segments—such as RFQs, OTC, and capital markets—poses obstacles to effective participation.
To fully harness retail involvement, harmonization across these segments and greater transparency are essential. Moreover, the distribution of fixed-income products remains unorganized and unregulated, unlike equity and mutual funds. Establishing a safe and transparent framework is critical for fostering broader adoption of bonds among the majority of investors. Addressing these issues will be key to unlocking the bond market’s potential for economic growth.
Way Forward
As India advances toward becoming a $6-8 trillion economy, the bond market is set to expand by at least $1 trillion in the next three years. Retail investors will be crucial in this growth, funding capital and infrastructure needs. Their increasing participation will enhance the vibrancy, diversification, and resilience of the debt market, contributing significantly to economic growth and financial inclusion.
In summary, retail investors are not just a fleeting trend in the Indian debt market; their role signifies a lasting transformation with profound implications for the financial ecosystem.
(The author Vishal Goenka is Co-Founder of IndiaBonds.com. Views are own)
