Democratising Debt Investing

For decades, India’s debt markets have been the preserve of institutional investors, with retail participation limited and often discouraged due to their perceived complexity. Equity markets captured the imagination of small investors, while bonds—despite their importance in financing businesses and governments and being foundational to savings, credit creation and stable returns—remained invisible to a large extent to retail investors.

Since the launch of online bond platform providers (OBPPs), retail participation in corporate bonds has surged. The Securities and Exchange Board of India (Sebi) has responded to it by tightening regulations and cautioning against unregistered platforms. The emergence of Sebi-regulated OBPPs promises to democratise access to bonds, offering retail investors a digital gateway into a market once considered opaque.

However, retail investors must recognise that the apparent simplicity of OBPPs does not eliminate underlying risks in bonds. Unlike equities, where volatility is familiar, bond risks can be subtler, but significant. OBPPs have done a good job in improving access and participation. But the next frontier is presentation. Sample this: on an equity screen, you immediately see price, chart, news flow, volumes, and quick comparisons. On a bond screen, the single number that grabs attention is usually yield-to-maturity (YTM). Many retail investors read yield the same way they read an FD rate, that is: higher equals better. But yield is not a reward label, it’s often a risk label. A higher yield reflects higher risks associated with corporate bonds. The right question is not “Is the yield high?”, but “Why is the yield high?” As more retail investors discover bonds through digital channels, this question becomes urgent.

What Are OBPPs?

They are Sebi-registered digital marketplaces that allow investors to buy and sell bonds with the ease of a few clicks. They are hosted by brokers, non-banking financial companies (NBFCs), or fintech firms, and operate under the regulatory umbrella of stock exchanges.

In 2022, Sebi introduced a framework requiring OBPPs to register with stock exchanges, ensuring that only regulated entities could offer such services. This was to bring transparency and protect investors from unregulated intermediaries. The framework provides confidence to buyers that transactions are monitored, disclosures are standardised, and disputes can be addressed.

In short, OBPPs are not just fintech innovations; they are part of a larger regulatory push to broaden India’s debt markets.

What Buyers Must Consider

Credit Risk: This signifies the possibility that an issuer may default on interest or principal payments. The risk can be gauged through the bond’s credit rating (AAA, AA, A, etc.) and the rating notches (AA+, AA-, etc.) within a rating category. It reflects a rating agency’s assessment of the issuer’s repayment capacity.

Business Group/Goodwill Risk: The reputation and financial health of the issuing company or group.

Perception About Issuer: Investor sentiment can significantly affect bond liquidity and pricing, especially in times of stress.

Yield Level: Bonds offering unusually high yields may be compensating for high risk. Let’s say a bond rated AA is available at a yield of 7.50 per cent. Another bond rated AA, of the same maturity, is available at a yield of say 8 or 8.50 per cent. The higher yield denotes the higher risk.

Risk Appetite: Investors should cap the yield they are buying and not just go for the highest yield available. There are bonds with yield of, say, 13 per cent. You should buy it only if you have the appetite, otherwise buy bonds with, say, 9 per cent yield.

For retail investors exploring OBPPs, caution and due diligence are essential. The key factor is looking ahead and gauging the risk in the bond, your risk appetite and what suits you.

The Way Forward

What OBPPs should show on screen is a “Risk–Return at a Glance” scorecard. If sellers can run a “nutrition label” on packaged food, bond platforms can run a “risk label” next to yield. A bond platform should make risk as visible as return by showing credit quality, benchmark spread, rate sensitivity, liquidity, key terms, and issuer-group history on the same screen.

OBPPs represent a significant step toward financial inclusion. By digitising access to bonds, they open new opportunities for retail investors to diversify portfolios beyond equities and fixed deposits. However, democratisation must be accompanied by education. Without awareness of risks, retail investors may misinterpret yields or underestimate credit concerns.

Platforms, regulators, and educators alike must work together to ensure that OBPPs lead to informed participation rather than misplaced optimism. OBPPs are a meaningful step towards an inclusive bond market but the success of retail participation cannot be measured only by volumes or app downloads. It will be measured by whether investors understand the core truth: “Yield is not a reward. It’s a clue.”

As India’s financial markets embrace digital transformation, OBPPs could be the gateway to an inclusive debt ecosystem. For retail investors, the challenge is not just to click and invest, but to click wisely. The best platforms will be those that help investors read that clue clearly, before they click “Buy”.

Retail Investors’ Risk Checklist

Risk Appetite

• Financial Needs

• Exit Strategy

Awareness Risk

• Callable/Puttable Structure

• Secured Vs Unsecured

Liquidity Risk

• Trading Frequency

• Bid-Ask Spreads

Interest-Rate Risk

• Duration Impact

• Price Volatility

Credit Risk

• Rating Level

• Outlook/Watch

Business Group Risk

• Group Governance

• Stress Factors

Market Perception Risk

• Sector Sentiment

• Macro Shocks

Yield Level Risk

• Compensation Analysis