How retail investors can buy government bond for ₹100
5 min read 29 May 2023, 10:43 PM ISTInvestors can purchase a government bond on our platform, from two months tenure, all the way up to 39-year tenure, says Varun Sridhar, CEO, Paytm Money
PremiumInvestment portfolios of high net worth individuals (HNIs) tend to have large allocation to fixed income and debt as they look for stability, but retail investors usually don’t have much debt allocation, said Varun Sridhar, chief executive officer at Paytm Money.
In an interview, Sridhar said the company wants to make government bonds and other debt instruments more accessible to retail investors.
Paytm Money has launched bond investing platform for retail investors, wherein an investor can buy a government bond for as little as ₹100, along with tax-free and corporate bonds with a minimum investment of ₹1,000. Edited excerpts:
Why have you decided to offer bonds on your platform?
Several investors just want reasonable returns without very high risks. They want returns that are slightly higher than savings account and bank fixed deposits. They want capital protection with the ability to get some decent interest back. In capital markets, this can happen through fixed income instruments or bonds. Investors can choose from three types of bonds on our platform.
Government bonds have the least risk as these are issued by the government of India and come with a sovereign guarantee. So, investors can purchase a government bond on our platform, from two months tenure, all the way up to 39-year tenure. Then there are tax-free bonds from government-owned companies and corporate bonds.
If you look at investment portfolios of HNIs, they tend to have large allocation to fixed income and debt instruments to give overall stability to their investments, but retail investors usually don’t have much debt in their portfolio. We wanted to make government bonds and other debt instruments more accessible for retail investors.
Can lack of liquidity in bond markets throw up a challenge?
With government bonds, liquidity is not an issue. With corporate bonds, we have some restrictions where we don’t want to offer very illiquid bonds.
The investor can see on our platform when the bond was last traded – today, last week, last month or six months back. So, an investor that may not want to hold the bond till maturity is aware that the bond may or may not be as liquid, and may want to avoid it if it is the latter.
By default, investor orders are routed as limit orders. We are doing this to make sure investors get their order executed at bond prices (which is linked to the bond yield) they see on their screen. If an investor decides to choose market order, we send a small note of caution to investors that opting for market order is risky as the market price might vary significantly than the screen price, if the particular bond lacks liquidity.
What is the process of buying a bond on your platform?
While the platform is live, we have opened it as early access for some of our users right now. An investor needs to have a demat account with us. For a government bond, the minimum investment required starts from ₹100 to ₹10,000, depending upon the bond. For tax-free and corporate bonds, the minimum investment is around ₹1,000. The orders are routed through the exchanges where the minimum lot size is lower, which translates into lower minimum investment.
Once the order is placed and executed, the bond gets transferred into the investor’s demat account on T+1, i.e. the day after the order is executed.
What about instruments like AT-1 (additional tier-1) bonds or other complex products?
We are of the view that we should not sell anything complex to retail customers. It is difficult to understand the legal fine print in such bonds. Investors are looking at buying government bonds or a corporate bond; if they have a slightly higher risk appetite. With corporate bonds too, they would look for bonds issued by large corporates or business groups.
But at the same time, we are not creating a risk framework for investors and telling investors what to buy and what not to buy. We are not an RIA (registered investment adviser). The role of advisers is different, where they need to understand individual risk and match the product. We are a DIY (do-it-yourself) platform that aims to be transparent, open, with some basic consumer protection built-in, by giving investors as much as information and disclosures as possible.
What kind of information can investors see on your platform?
If an investor goes on the exchange, he can see the price of the bond. We convert this price into the bond’s yield and show that on our platform. As mentioned earlier, we show when the bond was last traded to give the investor an idea about the bond’s liquidity.
We have ratings from different rating agencies. Lot of times, ratings across different rating agencies might differ. To give investors a fair idea, we highlight the lower rating on the main page.
Once the bond is purchased, the investor can see the future income from the investment, the cash flows from coupon payments, etc. The other basic details such as tenure, maturity date, ownership, coupon frequency, coupon rate, face value, ISIN (International Securities Identification Number), etc. is also available.
What is the criteria for listing a corporate bond on the platform?
We offer everything that is listed on the exchanges, except that on the exchanges, sometimes institutional buyers and sellers put very bad quotes for certain bonds. They even put quotes for negative interest rates. So, things like that we remove. We will not put something that is in trouble, where the money is gone. But something that gets listed on exchanges, can it go bad? Yes. Because at the end of the day it is a bond, it is not a capital-protected instrument.
What are the other new launches on Paytm Money?
We started with direct mutual funds. Then we started offering broking services two-and-a-half-three years back, for equity markets and futures & options (F&O). We now have an open API (application programming interface) algo trading platform. So, essentially one can connect any API onto the platform and execute preset trading strategies in the F&O segment. Then there are IPOs (initial public offers). We recently launched SME (small and medium enterprises) IPO on our platform. We also launched stock SIP (systematic investment plan) option on our platform where investors can invest in a stock in a staggered manner just like a mutual fund SIP.
