Exploring the Benefits of Buying Bonds Online

Introduction

It’s remarkable how online shopping has seamlessly integrated into our lives. A decade ago, many were hesitant about making online purchases. Now, we buy everything from clothes to groceries, medicines, jewelry and even Gangajal online (yes, look it up). The advancement of technology and increased earning power, accelerated by the pandemic, has expedited this process. We are still witnessing the infancy of AI’s potential, making these times truly fascinating.

Digital penetration extends beyond FMCG; it has also impacted financial markets. Tech-enabled startups like insurtech and wealthtech have emerged, transforming industries such as insurance and wealth management. In the world of financial instruments, particularly bonds, we now have Online Bond Platform Providers (OBPPs) that facilitate seamless transactions. Consider OBPPs as the Amazon for bonds. In this article we’ll explore the benefits of buying bonds online.

The Dark Ages

Previously, purchasing bonds in the secondary market was facilitated through brokers or banks. Some bonds lacked liquidity, meaning that when attempting to exit, initiating a trade might not ‘yield’ a fair price. Access to bond investments was restricted to major cities where banks, financial institutions and brokerage firms were concentrated, posing challenges for investors in rural areas. Traditional methods of investing in bonds were time-consuming, requiring investors to physically visit offices, complete paperwork and wait for transaction processing. The management of physical bond certificates and paperwork necessitated meticulous record-keeping, with a risk of loss or damage complicating redemption or transfer processes. Retail investors often faced limited access to information regarding available bond options, pricing and market trends, relying on brokers or financial advisors whose guidance could sometimes be biased or inadequate. Accessing bonds through a bank often meant being restricted to the bonds held by the bank and available for sale. Traditional bond investment methods typically incurred higher transaction costs, including brokerage fees and administrative expenses.

Enter OBPPs

In 2012, tax-free bonds debuted, offering attractive yields and tax benefits to retail investors. This initiated retail investor participation in bonds. With bank fixed deposit returns declining, bonds offering inflation-adjusted returns became increasingly appealing. Companies quickly issued bonds, attracting significant retail investor interest. With the rise of fintech in India, online platforms emerged offering bonds to investors. However, some platforms offered investments in unlisted debt securities, mirroring traditional offerings. Information on risks was often incomplete and riskier bonds were wrongly marketed as fixed deposit alternatives. In November 2022, SEBI regulated OBPPs to ensure long-term growth, protect investor interests and establish market trust, laying a strong foundation for development.

Benefits of buying bonds online

Buying bonds online from SEBI-registered online bond platforms offers several benefits for investors, including:

Convenience: Online platforms allow investors to buy bonds from the comfort of their homes or offices. They can access bond markets anytime, anywhere, eliminating the need to visit physical offices or rely on intermediaries.            

Accessibility: Online bond trading platforms broaden access to bond markets, enabling investors from diverse geographic locations to participate. This increased accessibility opens up investment opportunities for retail investors who may have been previously excluded.

Transparency: These platforms provide investors with comprehensive information about available bonds, including pricing, yield, maturity dates and credit ratings. This transparency empowers investors to make informed decisions based on their risk tolerance and investment objectives.

Efficiency: Online bond trading platforms streamline the investment process, allowing for faster execution of transactions. Investors can place orders, monitor their investments and receive updates in real-time, enhancing overall efficiency and responsiveness to market dynamics.

Diversification: Online bond platforms offer access to a wide range of bond options, including government bonds, corporate bonds, PSU bonds, etc. This diversification potential enables investors to spread risk across different bonds and achieve a well-balanced fixed income portfolio.

Cutting-edge Technology: Online platforms often feature seamless tools and algorithms that help investors manage their bond portfolios more effectively. These tools may include portfolio analysis, bond calculator and personalized dashboard enhancing investment efficiency and discipline.

Security: SEBI-Registered Online Bond Platform Providers prioritize security measures to protect investors’ personal and financial information. Encryption technologies, secure payment gateways, and multi-factor authentication mechanisms help safeguard against unauthorized access and fraud.

How to buy bonds online from IndiaBonds

1. Log in or sign up on IndiaBonds.

2. Choose a bond based on your preference. Access detailed issue reports, including information on interest payment frequency and calculate your investment against the final payout.

3. Complete KYC (paperless) in less than 3 minutes online, with no need for paperwork or uploads.

4. Click on ‘buy this bond’ and make an online payment directly to Clearing Corporation. 5. Connect with your Bond Managers. If you are unsure about investing in bonds, reach out to our Bond Managers for assistance in buying bonds online.

Conclusion

In conclusion, as fixed income investment options evolve, buying bonds online emerges as a convenient choice for retail investors in India. With the SEBI’s regulation of OBPPs, investors gain access to transparent and regulated platforms offering diverse bond options. The removal of debt indexation from debt mutual funds highlights the appeal of direct bond investments for retail investors. However, choosing the right OBPP is crucial, as some platforms may offer unregulated investment products. Therefore, investors must select SEBI-registered platforms like IndiaBonds, prioritizing investor protection and regulatory compliance. By leveraging the benefits of buying bonds online, investors can confidently drive the bond market and build a tailored fixed income portfolio.

FAQs

Q. Why should you invest in bonds?

A. Investing in bonds offers several advantages, including regular interest payments, capital preservation and diversification of your investment portfolio. Bonds are often considered less volatile making them an attractive option for conservative investors or those nearing retirement.

Q. What are the benefits of buying bonds online?

A. Buying bonds online provides convenience, accessibility, transparency and cost-efficiency. Investors can access a wide range of bond options, research detailed information and execute transactions from the comfort of their homes. Online platforms offer real-time updates, streamline the investment process and often incur lower transaction costs compared to traditional methods.

Q. What is an OBPP?

A. An OBPP stands for Online Bond Platform Provider which is a SEBI registered stocker and licensed bond platform provider. OBPPS have to follow strict rules and guidelines when offering bonds to the masses as prescribed by the exchanges and regulator.

Disclaimer: Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.