Jirodha is the Chief Executive Officer Nithin Kamath: 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 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.
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“Companies can now issue bonds with a face value of ₹10,000. This is a great move that can help attract retail participation in the bonds. With all the changes in the last few years, SEBI has done an amazing job of making bonds accessible to small investors,” Kamath wrote in a post on X.
Kamath had earlier spoken out against the non-availability of bonds to retail investors. Bonds have been an HNI product, and no one sold them to retail, he had said.
“There were two big issues: 1. Availability of bonds with small face values. Most bonds are issued through private placements and have face values of ₹10 lakh+. So retail investors were priced out. 2. All bond deals had to be settled through the clearing corporations, and they only accepted RTGS as a payment mode. So the minimum transaction size became ₹2 lakh + by default,” Kamath wrote in January 2023.
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However, Sebi has made some key changes that make it easy for retail investors to invest in corporate bonds, he noted.
Apart from lowering the denomination, Sebi has standardized the record date for identifying eligible holders, harmonized the format of the due diligence certificate provided by the debenture trustee, and provided flexibility regarding the publication of financial results in newspapers for entities that have listed only non-convertible securities.
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Sebi board also approved the proposal to provide an option to the issuers to issue NCDs or NCRPS through private placement mode at a reduced face value of ₹10,000 along with the requirement to appoint a merchant banker.
Such non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) should be plain vanilla, interest or dividend-bearing instruments. However, credit enhancements would be permitted in such instruments.
The regulator also approved the proposal that the record date for the payment of interest repayment of principal of debt securities or NCRPS should be 15 days before the due dates of such payment obligations.
