Why Zerodha’s Nithin Kamath likes bonds? Here’s what his new post suggests

“We’ve always believed that bonds and maybe not stocks are the right stepping stone for most Indians—better than FD returns but lower risk than stocks,'” the Zerodha boss said.

In a series of tweets, Kamath said, “Bonds have been an HNI product, and no one sold them to retail. But SEBI has just made some important changes recently.”

Explaining further, he 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 ₹10lakh+. 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.”

In the last few months, as per Kamath, Sebi has made some key changes that will make it easy for retail investors to invest in corporate bonds.

1. The face value of privately placed bonds was reduced to ₹1 lakh.

2. Brokers are now allowed to participate on Request For Quote Platform (RFQ) on behalf of investors

3. The most important change from yesterday was allowing alternate payment modes apart from RTGS.

Now, bonds worth less than one lakh can also be settled through clearing corporations, Kamath said.

“These measures will go a long way toward making it easier for retail investors to invest in corporate bonds. As retail demand increases, we should hopefully see more bond issues with smaller face values,” he tweeted.

Earlier on Monday, Sebi said payment mechanisms provided by banks and payment aggregators can be used for settlement of trades in the debt securities executed on the request for quote (RFQ) platform of stock exchanges.

This is in addition to the existing payment mechanism of Real-Time Gross Settlement (RTGS) provided by banks, the Securities and Exchange Board of India stated in a circular.

As a matter of practice, presently, stock exchanges are using RTGS channel as a mode of settlement for trades executed on the RFQ platform with respect to listed corporate bonds, commercial paper, and securitised debt instruments.

“It is clarified that in addition to the existing payment mechanisms, payment mechanisms provided by banks/ payment aggregators authorised by Reserve Bank of India, from time to time, may be used for settlement of trades executed on the RFQ platform,” Sebi said in a notification.