Nithin Kamath of Zerodha applauds Sebi’s action to increase retail bond market participation

The Securities and Exchange Board of India (SEBI) decided on Tuesday to lower corporate bonds’ face value from the current ₹1 lakh to ₹10,000 in an effort to encourage individual investors to participate in the debt market

Nithin Kamath, the co-founder of Zerodha, has praised SEBI’s recent decision to cut the face value of corporate bonds. Kamath feels that bonds are a better first step for most Indians than stocks because they offer higher returns than fixed deposits and a lower risk than stocks.

It is thought that by reducing the face value of corporate bonds from the current ₹1 lakh to ₹10,000 from Tuesday, capital market regulator Securities & Exchange Board of India (SEBI) will encourage more retail investors to participate in the debt market.

“Now, businesses are able to issue bonds with a ₹10,000 face value. This is a wise decision that may encourage regular investors to purchase bonds. In light of recent developments, SEBI has done a fantastic job of facilitating small investors’ access to bonds,” Kamath stated in a post on X.

Kamath had already voiced his opposition to bonds not being accessible to ordinary investors. He had stated that bonds were an HNI product and that no one had marketed them to retail.

“There were two major problems: 1. Bonds with low face values are available. The majority of bonds, with face values of at least ₹10 lakh, are issued through private placements. Thus, the average investor was priced out. 2. The clearing corporations handled the settlement of all bond agreements, and they exclusively took RTGS as payment. Thus, by default, the minimum transaction amount was increased to ₹2 lakh or more,” Kamath wrote in January 2023.

He pointed out that Sebi has implemented several significant adjustments that simplify the process for ordinary investors to purchase corporate bonds.

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In addition to reducing the denomination, Sebi has standardized the record date for determining eligible holders, harmonized the debenture trustee’s due diligence certificate format, and given entities that have only listed non-convertible securities more latitude in publishing their financial results in newspapers.

Along with the necessity to choose a merchant banker, the Sebi board also accepted the proposal to give issuers the option to issue NCDs or NCRPS through private placement mode at a reduced face value of ₹10,000.

These non-convertible redeemable preference shares (NCRPS) and non-convertible debentures (NCDs) ought to be standard, interest- or dividend-bearing securities. Credit improvements, however, would be allowed in these kinds of instruments.

The request that the record date for the payment of interest repayment of principal of debt instruments, or NCRPS, be set fifteen days ahead of the dates on which such obligations are due, was also approved by the regulatory body.