How to Invest in Bond Public Issues in India

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Over the last decade, the Indian Bond Market has flourished, drawing more investor participation. The recent regulatory changes such as SEBI’s proposal to lower the minimum investment requirement in bonds and the introduction of the RFQ mechanism, hint at a promising outlook for the bond market.

In the wake of SEBI’s initiatives to lower the minimum participation amount from  ₹10 lakh to ₹1 lakh starting January 1, 2023, retail investor participation in the bond market has increased from 0.7% in FY’22 to 4% in Nov. 2023, marking a significant transformation. 

Traditionally, investors were inclined towards stocks, but now they recognize diversification’s benefits. Diversification means spreading your investments across asset classes like equity, bonds, etc. to manage risk diligently. User-friendly platforms like TheFixedIncome– a SEBI-registered OBPP make investing in bonds easier and more convenient for Investors. 

Corporate bonds present several benefits, providing an attractive alternative to other investment opportunities. Thus investors can leverage the growth and stability offered by corporate bonds.

Since participation in the debt market was restricted to institutional investors due to the high ticket size, corporations issued public bond issues to accommodate retail investors. Therefore, retail investors now have the opportunity to partake in bond issuances by investing just Rs.10,000. These bond issuances present an attractive investment avenue for investors looking for stable returns and contribute significantly to shaping the country’s economy.

This blog will guide you through the steps to invest in bond IPOs in India. However, before investing, let’s first understand the concept of a bond IPO and how it functions.

What is a Bond Public Public?

A bond IPO, also known as an initial public offering, is the initial issuance of bonds to the general public. The subsequent issuances are termed as the ‘public issue of bonds.’ However, people often refer to all public issues as Bond IPOs, which is not factually correct.

Public Issue of Bonds allows companies to raise capital enabling investment in business expansion, while investors can earn periodic interest on their invested funds.

SEBI establishes the rules and regulations governing Bond IPOs. Every company must meet these guidelines during the issuance of bond public issues.

How does a Bond Public Issue work?

The investor base is significant in a bond public offering, the issuer must submit a draft offer document containing comprehensive disclosures to the stock exchanges and the regulatory body after the issuance has been approved by the board of directors. The issuer then appoints one or more registered merchant bankers who are registered with the Board as lead managers for the bond public issue.

The issuer must file an offer document with the designated stock exchange, containing terms and conditions, constitutional documents, the last three years’ financial performance, intended use of proceeds, etc. Additionally, the issuer will provide all necessary information/documents to the lead managers to carry out due diligence as specified by the Board.

After the bond is issued, the issuer will pay the bondholders regular coupon payments and return the principal upon maturity.

Why do companies issue Bond Public Issues?

Companies raise capital from investors for various purposes such as expansion. It raises capital through private debt placements or a Bond Public Issue. Private placements are primarily tailored for larger institutional investors in which an individual investor cannot access such issuances.

Let us take a scenario where a manufacturing company, aims to expand its operations by setting up a factory in another city.

Now, how will this company acquire funds?

The company can opt for bank loans but might face challenges due to excessive borrowing. Thus, as an alternative, they can issue a bond public issue. 

In India, a significant portion of bonds are issued through the private placement mode. SEBI is actively working to improve this landscape by encouraging a shift towards more public issuances. In this regard, SEBI has placed annual caps on the total amount that companies can raise via private placements in a particular financial year.

How to apply for Bond Public Issue on TheFixedIncome?

TheFixedIncome is a SEBI-registered OBPP  offering access to an array of bond IPOs. It provides comprehensive information regarding various bonds and their issuers, facilitating investors with due diligence.

To participate in the Bond Public Issue, investors must have a Demat account. Once they have a Demat account, they can proceed to apply for the IPO. This involves the following steps.

  1. You can directly visit the platform, click on Bond Public Issue, fill in the required details, and place the order. Once your order is placed, you will receive a mandate from the exchange (NSE or BSE) which you will get on the UPI application you are using. You will have to accept the mandate within 48 hours or before the issue closes, whichever is earlier and then your money will be blocked for the order. Once the allotment is done, your money will be deducted from your account. Please note that the allotment process takes place in T (today) + 4 working days.
  2. The second option is to get registered on the platform and log in.

3. Once logged in, hover your cursor to Bond Public Issue and click on it.

4. Select the company you want to invest in.

5. You can download the IM of the issuer which contains comprehensive information about the issue and the issuer by clicking on the IM/ R.H.P. icon.

6. Select the series you want to invest in and how much you want to invest. The minimum amount for investing in a bond public issue is Rs. 10,000. Now click on Apply for Bond.

7. Preview all the details and click on Place Order by filling in the required details.

8. Once you place your order, you will receive a mandate from the exchange (NSE or BSE) which you will get on the UPI application you are using. After that, you will have to accept the mandate within 48 hours or before the issue closes, whichever is earlier and your money will be blocked for the order. Once the allotment is done, your money will be deducted from your account. Please note that the allotment process takes place in T (today) + 4 working days.

9. The online limit of payment per PAN card holder is INR 10 lakhs but the UPI limit is INR 5 lakhs. So an investor can make two transactions of INR 5 lakhs or as per his choice. For investments above INR 10 lakhs, you can contact TheFixedIncome team.

10. View your order history by clicking on it. You will be able to see your current order status in the Status column.

11. After the allotment process is completed, the bonds will be credited into your demat account. It’s important to keep in mind that bond public offerings operate on a first-come, first-served basis, so submitting your application early is necessary.
What are the documents needed to apply for an IPO?
● Basic Details- Keep your PAN card ready for identification.
● Bank details- Have the correct account information.
● Demat details- Client master copy
Invest in Bond Public Issues on TheFixedIncome Platform

Benefits of Investing in Bond IPOs

1. Fixed Returns on Investments

Investing in a bond IPO is a reliable choice for investors seeking predictability and stability. With a fixed coupon rate throughout the bond’s duration, investors can anticipate predictable fixed income at regular intervals (monthly, quarterly, or semi-annually), ensuring a steady cash flow.

2. Low Ticket Size

The minimum investment amount in a bond public issue stands at INR 10,000. This low entry requirement enables investors from various financial backgrounds to participate in bond investments. Even new investors can enter the market with minimal risk exposure.

3. Increased Market Liquidity

When a company goes public, investors get the opportunity to trade their bonds in the open market. Publicly traded bonds provide investors with the flexibility to buy or sell bonds whenever they want to, thus ensuring liquidity.

When the number of investors increases, the liquidity of bonds in the secondary market also rises. This enables the IPO owners to sell their bonds to interested buyers within this market.

4. Strict IPO Regulations

In India, bond investments are regulated by SEBI It has implemented rigorous regulations for IPOs to safeguard retail investors. According to SEBI guidelines companies must fulfill the standards set by SEBI to conduct an IPO. The prospectus of the company, containing essential details like performance metrics, financial data, growth projections, risks, and strategies, enables investors to make well-informed decisions. Therefore, investors get more information about the issuer compared to private placements.

5. Pricing Transparency

Through public issues, companies can raise substantial capital while ensuring transparent pricing for individual investors. With a Bond Public Issue offering a fixed price, investors can invest in bonds at face value, ensuring clarity and ease of investment decision-making.

6. Streamlined Application Procedure

In India, subscribing to bonds has become remarkably simple due to online application processes. There is no need to go through the cumbersome process of submitting detailed paperwork.

7. Diversification of Portfolio

By incorporating bonds in an investment portfolio, an investor can diversify their portfolio as it helps in mitigating risks and optimizing returns. This is because bond investments are not directly impacted by market fluctuations.

Key Considerations when investing in Bond Public Issue

When considering an investment in a bond public issue, there are several crucial factors to bear in mind:

1. Credit Rating

Assess the creditworthiness of the issuer company by taking note of the ratings rated by credit rating agencies such as CRISIL, ICRA, and CARE, among others.

2. Terms and Conditions

One should go through the term sheet and information memorandum thoroughly to understand the terms and conditions associated with the bond, including interest rates, duration, and other details.

3. Portfolio Diversification

Utilize bonds as a valuable tool to diversify your investment portfolio and mitigate overall risk. While bonds offer diversification benefits, it’s essential to maintain a balanced portfolio and not rely solely on them for investment.

Conclusion

Investing in bond public issues in India presents a prudent approach to diversifying your portfolio and getting a predictable income. By understanding the process and making informed decisions, you can reap attractive returns along with the stability and reliability that bonds offer.

In summary, investing in bond IPOs contributes to the financial health of the investors as well as fostering the growth of the companies. It’s a win-win situation for both parties.
Start your journey today with TheFixedIncome and secure your financial future with bond public issues.

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

FAQs

Q1. What is meant by Bond Public Issue?

Ans. A bond public issue, also known as an initial public offering, is the initial issuance of bonds to the general public. The subsequent issuances are termed as the ‘public issue of bonds.

Q2. Can NRIs invest in Bond IPOs or invest in NCD public issues?

Ans. No, NRIs cannot invest in Bond IPOs or NCDs public issues.

Q3. In how much time does the mandate received from the exchange have to be approved by an investor?

Ans. The mandate has to be approved by an investor within 48 hours or before the issue closes, whichever is earlier; otherwise, the mandate will expire.

 

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