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Your Money Deserves More Than 3% - Bond Investing Explained | Suresh Darak (Bondbazaar)
0 Plays2 seconds ago
What if your idle savings could earn 8–13% returns instead of just 3–4% sitting in your bank account?
In this episode of the Spotlight, host Akshay Datt speaks with Suresh Darak, founder of Bondbazaar, a digital bond investment platform that’s making the fixed-income space accessible to retail investors. With 20+ years in financial services and 13 years focused specifically on bonds, Suresh offers a masterclass in bond investing, debt capital markets, and personal finance strategies for modern India.
Key Takeaways:
👉India’s corporate bond market stands at ₹50 lakh crore, growing at 20% CAG
👉Bonds offer predictable returns, lower volatility, and daily interest accrual
👉Bondbazaar is building retail-friendly infrastructure for investing in listed and privately placed bonds
👉SEBI regulations and credit ratings ensure transparency and investor safety
👉Robo-advisory for bonds is set to make smart investing even more accessible
#BondMarket #Fintech #StartupStory #IndianStartups #FounderThesis #FixedIncome #RetailInvesting #UnfundedStartup #DebtMarkets #FinancialLiteracy #InvestmentStrategy #Entrepreneurship #BootstrappedStartup #IndianFintech #BondInvesting #WealthCreation #financialinclusion
Disclaimer: The views expressed are those of the speaker, not necessarily the channel
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Transcript
Introduction and Suresh's Experience
00:00:00
Speaker
Okay, Suresh, welcome to the Founder Thesis Podcast.
00:00:16
Speaker
I wanted to speak to you because you have spent 13 years in the bond market. You are the founder of Bond Bazaar, which is in a way disrupting the bond market. And i understand bond a cheez hoti hai people talk about bonds and uh it is an important part of the financial world but kia exactly bonds hote hai what is their importance i am not really very clear on that so i really want to understand from you everything about bonds can you take me through a little bit of uh
00:00:50
Speaker
Like where did bonds start from? but what What is the history behind bonds? and What does this term bond mean, for example? Like these are some of the things I'm curious to learn.
Basics and Functions of Bonds
00:01:02
Speaker
First of all, thanks, Sachsha, for inviting me for this interaction. Always good to interact something. And your start question is also interesting. From where the bonds started.
00:01:13
Speaker
And like, you know, the way you started that I spent 13 years in bond market. And I tell you something about that one. I have more than 20 years of experience in financial market.
00:01:24
Speaker
And when I say 13 years in bond market, because that was a direct you know exposure or managing the bonds, but indirectly I was exposed to the bond market for last 25 years.
00:01:36
Speaker
Okay. so the So the word that you know when we talk about that, why I said this one, because when we say that How the bond started and what is bond?
00:01:52
Speaker
It is interesting that everybody is exposed to bond market from their birth. So what is bond? In simple terms, you know, somebody is giving money
00:02:09
Speaker
a person which is loan and in return he will give interest to him for the specified period at agreed interest rate right this is what you know it's the basically a normal lending function nothing more that so that is what and if it is a normal lending function it means that is going on Since how many years? Even even I don't know.
00:02:34
Speaker
Maybe 1,000 years, 2,000 years or something like this. So that is the first thing. It's a normal lending. So what happens in any lending function? ah You start doing institutionalizing certain things.
00:02:49
Speaker
And that's where the journey starts. So maybe bonds, when we say, it started when government realized that they can also borrow money from the public.
00:03:02
Speaker
from the institutions and use this money for the development of the nation. So in my view, the earliest nations who were more developed was like UK, USA, is maybe 300, four Indians back.
00:03:17
Speaker
And they also set up
Regulation and Trading of Bonds
00:03:18
Speaker
something called their regulatory body. Like today we have a Reserve Bank of in India. They might have set Fed and something like that. So they started managing cash flow for the government.
00:03:27
Speaker
They started borrowing money from the market and Government used to use this money for the development approach. So that's how the bond market started. The advantage of bond market was, like earlier when, as I told you, that you are going giving money to somebody in return, you are getting interest in principle at a specified interval.
00:03:46
Speaker
Now these are more regulated and these are tradable instruments. this is the biggest difference happens. Once the big product becomes regulated product, it has various advantages.
00:03:58
Speaker
You set the process how the bonds are issued. There is a regulatory body who ensures that the bonds are issued at predefined SOPs process.
00:04:10
Speaker
And you know if something goes wrong, then the investors are protected through the regulations. That's where the regulation comes into detail. ah Am I correct in understanding then that...
00:04:23
Speaker
B2B lending, when one or another is lending, like a bank lends to a reliance, is called a bank loan. And B2C, when a business is borrowing from consumers, customers, regular people, that is a bond.
00:04:39
Speaker
No, it is not like this. Even B2B can be bonds. So when you say B2B, like bank has given money to another corporate or even to government, if it is one to one, then agreement is between two parties, the lender and the borrower.
00:04:59
Speaker
Correct? So, and the borrower will pay interest in principle to the same lender. But the same thing is done through the bond market then it's a tradable instrument and then there are once it is tradable it means it is like equity market what happens in the equity market that the buyer and seller are not the original investors it can be the secondary market the secondary market develops so that's the difference in case of
00:05:32
Speaker
bond market, there is a secondary market of trading where somebody has given money, let's say a bank has given money to a corporate, to a bond market for 10 years and he has to pay a regular interest at the rate of 10%.
00:05:47
Speaker
Now after one and a half year, bank thinks that I need money so he want to sell this one he can sell this one in the market but he is not required to sell this one back to the issuer who has borrowed this one he can sell in the secondary market in somebody else it can be an individual also it can be a corporate also it can be another bank also will buy this one now issuer will on the record that will check that now who is holding this one he will pay the interest to that on the interest payment and that is what bonds it's a tradable issue interesting so is uh is this accessible to anybody and everybody or do you need to be of a certain size if i run a small business mirror let's say 10 crores turnover can i issue a bond or do i need to be a company with a couple of hundred crores turnover to issue a bond
00:06:36
Speaker
So the bonds to issue a bond you know you require couple of things like first thing is to be regulated is a regulated product so you have to follow the guidelines issued by SEBI for issuance of any bonds.
00:06:51
Speaker
So SEBI has put that guidelines that you know if you want to issue a bonds you should have a credit rating from a rating agency ah which is appointed by SEBI.
00:07:03
Speaker
You should have a debenture trustee And then there are certain minimum disclosures which we have to do through information memorandum which is circulated before the issuance With that, anybody can issue the bond.
00:07:15
Speaker
Size, there is for the debt IPO, the size is 10 crore. The minimum issuance size is 10 crore. and other than that you can issue the bonds there is nothing specifically but yes the face value of the bond the minimum face value of the bond is a thousand rupees means minimum investment start in thousand business corporate bonds in the government bond it is hundred this is interesting so you know so there are one part the issuer anybody can issue the bonds from the investor perspective anybody can invest in the bond anybody
00:07:49
Speaker
Retail can also invest. H&I can also invest. Banks also can invest. Mutual fund, insurance company, anybody can invest in the bond. So, bond market is accessible to everybody from the issuer perspective also and from investor perspective also.
00:08:05
Speaker
But yes, they have to follow the CB guideline.
Bond Market Growth and Participation
00:08:08
Speaker
Okay, interesting. So, minimum IPO size is 10 crores. So, IPO is like the... first time that you issue bonds in a market as a company is called an IPO or do you have to do an IPO every time you issue bonds?
00:08:24
Speaker
Yeah, when whenever, every time when you issue a bond, and You raise money from the public or you raise money from the institution. So that is called fresh issuance. You raise money, fresh money.
00:08:36
Speaker
So if you want to involve public, retain public, it is called debt IPO. Otherwise, it is called privately listed bonds. You can just raise money from institutions and also it can be a listed bond.
00:08:46
Speaker
Both the processes are okay. But every time when you want to raise fresh money, you have to follow the same process again, which is good, which is because you know every time you have to disclose all the information of fresh, ensure that you follow all the regulatory norms.
00:09:01
Speaker
Okay, got it. So I think this makes it pretty clear that bond is not for... SMEs, it's more for mid-market and larger enterprise because 10 crores is the minimum size. And then to get a credit rating would have a certain cost attached to it. You need a certain maturity level before you can access bonds as an instrument for raising money.
00:09:24
Speaker
What is the... Yeah, of course. How much does ah the interest rate... oh stand for bonds as compared to bank loans? Again, I'm speaking from the point of view of the company. If as a CFO, have to decide, do I raise bank loan? Do I go for bond issuance?
00:09:41
Speaker
ah What is my way of evaluating which one is cheaper option of funds for me?
00:09:49
Speaker
See, there are multiple parts. let's Let me just talk about the size of the market and who raised money from the bond market.
00:09:58
Speaker
okay Let's talk about that right now most of the corporate uh that's the government raises money from the bond market closer to six and a half per percent closer to six six quarter six and half percent when it comes to high rated corporates they are raising money somewhere between seven percent to seven eight and a half nine percent which is almost like tatas will and then there are many other corporates who are raising money between eight and a half percent to twelve percent thirteen percent so this is the cost
00:10:30
Speaker
which ah you know somebody has to pay if they are raising money from bond market. Now, people come to the bond market for various reasons. First thing is the diversification of liabilities.
00:10:42
Speaker
Because if it is only one source of funding, which is bank, sometimes if you need more money, where you will go? You can't be dependent on only the one source of funding, whether it is large corporate like L&T, Stata,
00:10:56
Speaker
Second part is there are many restrictions for banks to lend money to many corporates. So, you know, for various insurance. So like if it is they are raising money against a particular land equation or something like this, and which may be safe or maybe.
00:11:11
Speaker
So then they raise money from the bond market that gives you that flexibility for the ending. So they also come in the bond market. the larger thing is bond market is much bigger. seriously huge. Right now, the annual issuance in the bond market, corporate bond market, it is more than 10 lakh crore in a year.
00:11:27
Speaker
The outstanding corporate bond market is closer to 50 lakh crore. and You get much wider investor base, much wider. you get You can attract insurance companies, PF, mutual fund, H&Is, corporate treasuries, everybody, right? Including banks who are giving you any visual money through the term loan market.
00:11:46
Speaker
So all sorts of people raise money from the bond market. You said 50,000 crores is the... ah outstanding corporate bond? 50 lakh crore. 50 lakh crore. Okay. 50 lakh crore is outshend.
00:12:00
Speaker
Okay. What is the comparable number for a term loan? Like a bank term loan? What would be? So let's talk about loan market, which is closer to 100 lakh crore, 110 lakh crore, something this.
00:12:11
Speaker
Okay. Okay. Correct. So if you see the term loan market probably is growing at the rate of, so this is outstanding term loan market, outstanding corporate bond market. So the i ous outstanding term loan market may be growing at the rate of 2 to 3% on CAGR basis, but outstanding bond market is growing at the rate of 20% every year.
00:12:33
Speaker
So it is picking up because, you know, it started off late. So if you see, let's say maybe 15 years back, Corporate bond market was closer to 10-15 lakh crore and term loan market was closer to 90-95 lakh crore.
00:12:48
Speaker
Now it has become 50 lakh crore and the term loan market has become 110-120 lakh crore. So you can imagine that the bond market is picking up much faster. So till now what was happening? Who were the investors in the bond market? In a developed country like US, what is the ah which is bigger?
00:13:03
Speaker
Wow, in developed countries, definitely capital market... is the biggest and there is hardly any term loan market which exists in developed countries okay okay everyone wants a liquidity option so yes of course because it is much more when you give a loan as a bond for the lender you have liquidity as an option like you can you have a tradable instrument so therefore if you ever need cash then you can sell that and get cash so see vibrant bond market
00:13:38
Speaker
is the crux for any developed economy. So like ah the US become a ah much powerful during 1940s to 1970s or maybe after the Second World War, when they developed the municipal bond market, means all the municipalities start raising money from the bond market and that money was used for the development of the nation.
00:13:58
Speaker
right so So the vibrant bond market is much if you want to become a developed country. So that is the first thing. As you rightly said, it is regulated product.
00:14:09
Speaker
Second thing is, it is a tradable instrument. And last thing is, you attract a wide range of investors, which is possible only through the bond market, which is not possible through term market. So it is in is it is in the interest of the country that you develop the bond market.
00:14:28
Speaker
And once the retail participants start happening in any any instrument, in the bond market, Then you can mobilize money for each and every growth prospects of the country, for the corporate.
00:14:42
Speaker
Like, ah you know, ah what happened in the equity market? Today, retail has become a really big force in Indian equity market. So you are not dependent on DIAs and FIAs that they are also only going to support the market.
00:14:56
Speaker
Now, retail is also dii if i is also domestic institutions. Domestic institutions in the sense mutual fund, insurance companies and those guys. FIs are the foreign institutions, right?
00:15:09
Speaker
So today you are not dependent on them that, you know, if there is some problem in the market because retail has become a significant force, like equal force as DIs and FIs. The same thing at some stage will happen in the bond market also.
Bond Markets vs. Savings Accounts
00:15:20
Speaker
because why it will happen just ah today I give the size of see bond market is more about efficient efficiency efficiency at the issuer level at the investor level so just few data but right no like around 15 to 20 lakh crore is lying in the current account where retail is earning zero percent right these are all RBI data around 60 to crore is lying in saving a account where people are earning less than three percent to four percent around hundred lakh crore is lying in the fixed deposit account where people are earning somewhere between six to seven wow it is almost like 200 200 lakh crore is the inefficiency out of that hundred lakh crore which we typically call casa
00:16:09
Speaker
That is the entire profitability of the banks because they are paying zero cost on this 100 lakh crore. And they may be earning even 8% to 10% if they are earning it means they are earning 8 to 10 lakh crore.
00:16:21
Speaker
And who is losing in this entire process? Retail. H&Is. ah you know And they think that my five lakh rupees is lying in the saving account doesn't matter. But actually they lose 50,000 rupees as an interest.
00:16:34
Speaker
And they think that if I keep in the fixed deposit, it's a fixed tenor. So I will not keep in the fixed deposit because I don't know when I need this money. But if they become efficient and they invest in the bond market, then they know that they are earning 10% to 12% on that money.
00:16:48
Speaker
So that is first thing that is the inefficiency. Now, when it comes to the bond market, you know, ah if you can make anything between 8 to 12 percent, 13 percent, it's a huge money.
00:17:00
Speaker
You invest today, you can sell to tomorrow. So for your holding period, you earn interest. So today, if you have a spare money, ah see, I always say that, you know, ah
00:17:15
Speaker
efficiency is everything.
00:17:18
Speaker
In equity market you can wait for the timing. That you know, you think that market is up right now, once it will come down then i will invest. One market is not about timing, it is all about efficiency. If you have money today, which is lying idle, invest.
00:17:33
Speaker
Because everyday lost is lost, you are not going to recover that. right So it is about the efficiency. Brown market brings that efficiency and just imagine that I always say you know, it brings, see sometimes in equity market you target 15% return.
00:17:53
Speaker
And the timing is important. But there is always a concept of weighted average return on your portfolio. So if your 10% or 20% money is lying in the fixed deposit, we are earning let's say 6% to 7%.
00:18:07
Speaker
And if you can increase the return by 5% to 7% by investing in bond, just imagine what is going to happen in your weighted average portfolio return. And probably your expected return or rest of the 70% which is a risky portfolio may come down.
00:18:20
Speaker
Second thing is, 5-10% money may be lying idle in saving account, current account. If you start earning 10-12% on that also, suddenly on that balance 30%, you are making additional 5-7%.
00:18:34
Speaker
So, this is where, you know, ah what we try to do. Try to bring retail into the entire world. Institutions are any which way efficient. I'll come to this on the retail participation.
00:18:48
Speaker
I want to kind of first understand the supply chain of it. Like, How is a bond listed? So as a company, if I decide, you said that companies want to have multiple sources of debt. So if I decide I want to go in for a bond listing, then what's the process? Do I need an investment banker?
00:19:05
Speaker
um ah you know How does a bond IPO happen?
00:19:10
Speaker
So I tell you how the bond is is First thing is there are SEBI guidelines. SEBI is a regulator in India. It is is government owned SEBI regulator. SEBI is regulating the bond market in India. SEBI is regulating the equity market in India. SEBI is regulating the mutual fund in India. The same, SEBI is regulating the bond market in India. they have let down the guidelines. If you want to issue any bonds, what things you have to do.
00:19:35
Speaker
So to issue any bonds, you require what? First thing is you require a merchant banker. who is is going to verify all the information about the company and prepare the document which is we call the information memorandum of the issue where all the information is there.
00:19:50
Speaker
Then you have a debenture trustee ah you know which is also SEBI regulated. Merchant banker is also SEBI regulated. Debenture trustee is also SEBI regulated. Debenture trustee is holding all the security because security will be created in favor of debenture trustee.
00:20:03
Speaker
He is a representative of all the investors in the bond. All the investors can ask all the questions to debenture trustee that, you know, whether all the security is perfectly created, whether the company is submitting all the information on quarterly basis about their financial financial performance, everything. They have to submit to the debenture trustee and debenture trustee interact with the order bond owner.
00:20:24
Speaker
Can you keep comparing to equity market? So for an equity market, is there an equivalent of a debenture trustee? ah In equity market, there is no security is created. Okay. So there is no need for a debenture trustee, right?
00:20:37
Speaker
Okay. But in bond market... so So the only difference between equity and bond is probably the debenture trustee because the security is created. The rest of the thing like transfer agent, everything is same. The process is absolutely same.
00:20:49
Speaker
Okay. So now, once all these things are done, then, you know, there are two ways to raise money from the bond market for any profit. One is the debt IPO, which is equivalent to equity IPO.
00:21:00
Speaker
The process is absolutely same. The way it happens in the equity market. But they will open the IPO. Like NSE, BSE, where is the debt listed? Same. NSE, BSE. NSE, BSE.
00:21:12
Speaker
Okay. Okay. In the same manner, it is listed. Okay. So, second is, you know, privately listed bond. In case of privately listed bonds, in the primary market, retail is not participating.
00:21:27
Speaker
in the sense, ah you know, they will raise money, let's say, 1000 crore, where institutions like mutual fund, insurance company, banks, everybody else can participate. And then it listed on the secondary market, BSE and NSE.
00:21:39
Speaker
Once it is listed in the secondary market, then retail also can participate. So the difference in, you know, public, issuance which is debt IPO and privately placed bonds which you know in the only is in primary in the primary market in debt IPO retail can also participate in privately placed retail can't participate but in the secondary market in both the cases once it is listed everybody can buy and sell even retail can buy because everything is listed in the BSE and NSE okay So this is the process of bond listing.
00:22:10
Speaker
They have to follow the SEBI guidelines, and which is very simple and straightforward. And their interest is protected through debenture trustees. And you need a DMAT account to buy and sell bonds, just like you need a DMAT account
Pricing and Trading Dynamics
00:22:22
Speaker
equity. absolutely. The same manner, the way it happens in the equity market, because, you know, it's a treatable instrument. So it comes directly in DMAT account.
00:22:28
Speaker
So, okay, a few more things than, as you rightly pointed out, what happens in the bond market. So, you know, securities will come directly in your DMAT account. Second thing is, interest and principle right so in the information moment it will clearly mentioned about brief details about the issuance like the terms and condition on the basis of which the company is borrowing the security which they are offering the rating everything will be mentioned so they also mention on which date they are going to make the interest payment and which date they are going to make the principle okay so uh the interest and principle comes directly
00:23:08
Speaker
in the bank account of the investor so issuer let's say let's say a company called you know data power data power or let's say reliance raise money from the bond market right so the bonds will be transferred in their demand account once so you know they get money from the investor if they want to buy and sell they can buy and sell from the secondary market that is the second thing but if they are holding the bonds on the interest payment date reliance industry will make payment directly in their bank account and when the principal is due they will directly make payment in their bank account so it is a very very easy
00:23:47
Speaker
Let's say once the bond is subscribed in the primary market and the guy want to ah ah bond tenor is 10 years, so Reliance industry will continue to make interest payment. Let's say it is decided that they will make interest payment on quarterly basis. So they will continue to make the interest payment on quarterly basis.
00:24:03
Speaker
and principle that I was asking about principle. Principle is normally paid only at end of the tenor, right? Or even it can be like every quarter, some principle is also paid work.
00:24:14
Speaker
So Akshay, this is the beauty of bond market. It is decided upfront by the issuer and the investor knows upfront that whether he is making, you know, let's say it's a three year bond, he may decide to make interest principal payment one third, one third, one third every year and interest payment quarterly, half yearly, yearly, monthly or on the maturity. All these things are predefined at the time of issuance and doesn't change during the life of the bonds.
00:24:46
Speaker
So investor is clearly aware that when he is going to get the interest, when he is going to get the principal. And issuer is also very clear when he has to make this payment. It doesn't matter to him that who is holding this bond on the interest payment date and on the principal payment date because he will just check with the debenture trustee and registrar that whose name is appearing in the trust in the records whoever name is appearing he will make the interest payment and visible payment to that bank and those and the best part about the bond market is all the details about all the investors completely you know are recorded so it goes directly in their bank account
00:25:26
Speaker
The data goes back to the issuer, to Reliance. Reliance will get the data that as on this date, who are my holders and their bank. Yes. Whenever the interest and principal date will come, he will take the data ah from the debenture trustee and from the registrar and make the interest and principal Okay.
00:25:42
Speaker
Okay. Okay. Got it. Okay. The way it happens in the equity market, right? If you have to make the dividend payment, what do you do? You check that on the record date, whose name is appearing in the records and you will make the payment to that guy.
00:25:54
Speaker
The same manner it happens in the bond market. That's what, you know, the advantage of bond market is. It's a tradable instrument, complete transparency, not a single, you know, error happens in all these processes.
00:26:07
Speaker
Right. Okay. Everything is automated. ah Now, you know, in the... equity market, ah price is a factor of like demand, supply, sentiment of the company, their profitability, so many things determine what price and equity is sold or bought at. um In the bond market, there one determinant of price would be the face value. Like this is a bond of, let's say, a thousand rupee bond. So, a thousand rupee theoretically should be the price at which it is bought or sold.
00:26:41
Speaker
But What about other factors like what are the other factors which influence price of a bond? See, as you rightly said, demand and supply. But ultimately, you know, the price of the bond is based on the rating of the bond.
00:26:53
Speaker
Okay. If the rating of the bond is, let's say, A+. plus So normally, all the A-plus rated bonds today are available somewhere between 10% to 11%. In that way. If somebody, some bond is more popular than he may be available around 10%.
00:27:07
Speaker
If someone is less popular, it may be around 11%. yeah Normally, based on the rating, you can decide that at what price you want to invest in that particular company.
00:27:18
Speaker
That is, this is the beauty of bond market. At least there is some rating agency who analyze the financial position of the company. And this rating agency review the rating every year. And if there is any change in the credibility of the organization, they inform All the investors, they publish the rating that yes, the company's performance is improving. They will improve the rating from a plus to let's say double A, triple a And if the performance is deteriorating, they will inform that you know the performance of the company is deteriorating.
00:27:47
Speaker
So people can take a call based on the rating of the company. So this is first thing. Now, when we say that you know credibility of the bonds and how the price movement is going to happen.
00:28:00
Speaker
So two parts. One part is from the issuer perspective, he has borrowed let's say 1000 rupees and he has to make an interest payment of 10% every year. At the end of third year, he has to retain the principal.
00:28:11
Speaker
For him, it doesn't matter. he will make interest payment of 100 rupees at the first year, another 100 rupees at the second year, another 100 rupees at the third year and he will return 1000 rupees at the end of third year.
00:28:23
Speaker
Now in between what happens after one one year, one and a half year, let's say somebody has bought this bond at 1000 rupees, want to sell. So the moment on the price can be let's say 10% any which way is going to get the return.
00:28:37
Speaker
If somebody saying that no, I need return of let's say 11% on that one. So then he will say that instead of buying this bond at 1000 rupees, I will buy this bond from you at 975 rupees so that that you know, I can because the issuer is going to make the payment of only 100 rupees to me.
00:28:53
Speaker
but I can make slightly extra by this 25 rupees of capital gain, which I'm going to get from the issuer because issuer is going to make thousand rupees of principal repayment at the end of third year. So this is the only slight change can happen in the principal.
00:29:07
Speaker
ah Some bit of capital gain or capital loss can happen, but not much. That is what bond market is all about. And this should depend on ratings, right? if If the rating changes, then the...
00:29:20
Speaker
ah expectation of return would change and therefore the capital gain or capital loss? Three, four things. Three, four things can impact the price movement. One is the demand and supply. The demand of the bond goes up significantly. People think that you know this bond is really good, right?
00:29:35
Speaker
So they may start asking more than the people. which Instead of 1000 rupees, somebody will say, I will ask 1050 rupees or something. Why would demand go up if there's no change of rating? Because, you know...
00:29:48
Speaker
Let's say there are more than 10,000, 15,000 bonds are available in the market. Now I like a particular company. I know that, let's say this is a company called X and I given money in the past.
00:30:02
Speaker
I like this company. They are good and I understood this. So I think instead of investing 100 rupees, I may invest 500 rupees only in this company because I like this company. Simple.
00:30:13
Speaker
So instead of as compared to other companies, I like this company more. Rating is one thing, but ultimately when you invest and you give money to anybody, if you return your money back, it's like a sovereign for you. right yes not fourteen So I 10% this bond is good.
00:30:31
Speaker
So I continue to invest. So this is how the demand keeps on going. And that's people hear from each other. he says that, okay, X, Y, Z is investing in the bonds and I will also en invest in the same bonds. Second thing is the price movement happens because of the in interest rate change.
00:30:44
Speaker
RBI, like, ah you know, again, the RBI policy is there every second month. So RBI increase the rate or reduce the rate. If RBI increase the rate, then people will think that why I should buy this bond at 10%. Let me demand. that What is the rate that RBI is and increasing or decreasing that overnight lending? Repo rate.
00:31:02
Speaker
Repo rate. Okay. which is the base rate at which ah RBI can lend and borrow money to the banking sector, which is fulcrum of the entire financial market in India and anywhere in the in the world. right So they decide the base rate base rate basically, ah you know let's say today it is let's say closer to 6%.
00:31:21
Speaker
It means ah if banks are short of money, they can go to RBI and say that please lend money to me because RBI is printing money. Who is printing money in India? RBI. So RBI has unlimited money.
00:31:33
Speaker
So they say, okay, if ah you are short of money, you can come to me. I will lend you money at 6%. And if you access money, then you can park money with me and I will pay you 6%. That's where it is called repo rate or base rate or whatever it is.
00:31:47
Speaker
So that is the risk free rate. this is It is absolutely risk free rate. It means the app but you are giving money to whom? The person who can print the money. So okay gar so you can't default.
00:32:00
Speaker
So that's start point. Now let's say RBI decreased the rate by 1% because recently RBI has increased the rate by half percent. So it means the person who is borrowing at 10% will say now the fresh borrowing I'm doing at 9.5% because RBI has reduced their benchmark.
00:32:13
Speaker
And the RBI increase the rate by half percent, then he has to increase his borrowing rate. So that is another factor happens in the secondary market. The bonds which are already issued will trade at discount and premium because the interest rate has changed. But the issuer will continue to pay the same 10% interest rate because for him nothing will change. right Because it is already documented.
00:32:36
Speaker
And as I told you earlier, earlier in bond market, once the bonds are issued, it will not change. So but the second you market, the price movement, some bit of movement can. That is the second.
00:32:46
Speaker
And the last, as you rightly said, which you were saying, yes, rating change. rating deteriorate or improves then based on that also people if the rating is in rating is improving then the same guy see these are the continuous borrower i raised some money three years back i logged in i don't have a choice but i have to continue to pay the same interest rate and something now today my rating has improved from a plus to double so if three years back i raised money at 10 today probably i will raise money at nine percent so it means my bonds which are available in the secondary market will also start trading at nine percent we trade at premium
00:33:21
Speaker
and vice versa. Got it. Okay. Okay. Okay. Interesting. um
00:33:29
Speaker
So ah is there an opportunity for a trader to make money by buying a bond when he expects the rating to go down?
00:33:41
Speaker
Like if you buy a bond when you're expecting a rating to go down, the price of the bond would increase, right?
00:33:49
Speaker
See, actually, frankly, the price would decrease. Okay. Yeah. So you are saying trading opportunities for traders in the sense individuals or H&I, right? like Like, you know, in equity market, people do day trading and, you know, like short-term trading. So so is there like that short-term trading opportunity in the bond market?
00:34:09
Speaker
that you uh so there are two type of in two type of uh investors in the one is institutions like mutual that's a mutual fund insurance and big trades they are traders they buy the bonds you know from a perspective sometimes they have many factors sometimes it is for htm htm in the sense whole deal maturity because they also mobilizing money from the retail and they have to make the interest payment for them so they are they also buy because of the short-term opportunities because there can be rating improvement there can be a rate cut because of that they can make some capital gain everything is possible so there but when it comes to the retail and hni normally um maybe 99 100 cases
00:34:55
Speaker
These are more like a HTM trade. They buy to earn interest during their whole pay, not for capital gain. Because one thing is their quantums are small. Sometimes because the minimum investment can be thousand rupees, ten thousand rupees, even ten lakh rupees, one crore, five
Liquidity and Market Challenges
00:35:10
Speaker
crore. But still it is very small quantum.
00:35:13
Speaker
You know, to see bond market is slightly illiquid as compared to the equity market. But the options which are available in the bond market is humongous. like Just to give a perspective that in equity market, in NSE there thousand two thousand one um these are are listed. In BSE around 5,000 companies are listed.
00:35:31
Speaker
In bond market, there are more than 20,000 securities are available to invest. ah So, it doesn't mean there are 20,000 companies because each company could have multiple securities. like some Absolutely. Absolutely. twenty Then 2021. Correct. You are right. Like if there is a power finance corporation who is raising money from the bond market, he may have more than 100 securities issued, which yeah has a different maturity, different coupon rate, different interest payment match frequency. It can be monthly, quarterly something. All the things are possible.
00:36:04
Speaker
So, you know, ah made most of the people buy it more from a perspective to earn interest and they sell when they require liquidity. But definitely not from a perspective of making capital gain.
00:36:18
Speaker
But it is always good for you. Of course, in the process, they can always make some capital gain. They make, yes, they make. It is not that they don't make. Would the the price of the bond also change based on the date? Because If interest payment is every three months and you bought it and the interest payment is one month away, so you've technically the two months worth of interest should be factored into the price.
00:36:45
Speaker
So how it happens, which is logical thing. This is the beauty of bond market. It is very, very logical and practical. So let's say interest accrues every day.
00:36:58
Speaker
if you and i so If you buy and sell bond, let's say face value of the bond is 1000 rupees, interest is 10%. Assume there is ah no change in the secondary market rate. and In the secondary market also this bond is bought at solid 10%.
00:37:16
Speaker
So now ah after six months, right so there will be a six months interest will be added to this bond automatically. whenever the trading is happening in the second month. Automatically it will be added. It is not that you, yeah you know, investor has to do anything.
00:37:32
Speaker
The system per se will calculate it automatically. So they will add 50 rupees of interest in this bond. Okay. So the bond will be bought and sold at 1050 rupees. Why it will be like this one? Because at the end of one year, the issuer will make 100 rupees of interest payment to the holder of the bond.
00:37:50
Speaker
But how much he should get ideal ideally only 50 rupees because he was holding the bonds only for six months. Yes, because the interest rate was 10 percent. But he is getting 100 rupees because 50 rupees for his whole position, 50 rupees he has paid to the seller of the bonds and he has bought this bond in the secondary market.
00:38:07
Speaker
So this is the transparency and, you know, the beauty of bond market. ah It is easy. It takes care of everybody's interest.
00:38:17
Speaker
And this is the feature which ensures there is a tradability in them. Okay. Okay. ah Is the price decided through a bid auction kind of a mechanism? Like like how does a sale and purchase happen? like like How it happens in the equity market?
00:38:32
Speaker
Hmm.
00:38:34
Speaker
I'm not... Buyer and seller put their... Buyer and seller put their quote, right? Right. and So, in the same manner, it happens in the in the bond market. So, yeah. It is absolutely the same process. When you say a bond market is not as liquid as equity market, what does that mean? What are the implications of that?
00:38:53
Speaker
See, couple of things. Like, ah you know, one is like equity market... Let's take the example of Reliance Industry. Only one security is issued which is Reliance Industry.
00:39:06
Speaker
And it is issued forever. It is one security. So if you want to buy and sell Reliance, it is only one security, one ISM. but mean the So it is equity. But when Reliance Industry raise money through the bond market,
00:39:21
Speaker
They may raise money, there may be 100 securities which are available. Some securities may be maturing 3 years, somebody 3 and a half years, something maturing in 10 years, somewhere the interest payment is monthly, somewhere it is quarterly, somewhere it half yearly.
00:39:35
Speaker
So it becomes tricky. Now as an investor, you bought one security which is maturing in 5 years and interest payment is quarterly. So that is because of this reason, because there are multiple securities, the liquid is less. So somebody has to do the active market making in the securities.
00:39:54
Speaker
So, you know, that's where the cash market of the exchange plays a significant role because it is an anonymous trade and guaranteed settlement. You can buy and say, so let's say if you want, if you are holding a particular security of the land industries, even if the buyer is not there, you can put your sale order and somebody can put a buy order after that.
00:40:14
Speaker
looking at that you know you want to sell it this particular price. So ah the marketplace is very, very important, which is just created now in India.
00:40:26
Speaker
marketplace okay so where you can put so it is a matter of time i think in 10 years time liquidity will not be as good as equity market but in three to five years time the liquidity will be really really good in the bond market at least you will be able to buy and sell most of the securities the way you are buying and selling equity okay okay so you have zerodha for ZeroDha, Grow, Appstocks, all of these apps for equity market. What is the comparable for bond market?
00:41:00
Speaker
So when you say ZeroDha and Grow for equity market, so you are talking about a market which is 100 years old, right? So, you know, after 100 years, you created one ZeroDha, one Grow, and a couple of more companies like this one.
00:41:14
Speaker
Bond market is fairly, fairly new as we talk about for the retail industry. See, bond market is very old when it comes to the institutional market. You are not creating new market, but you are opening it for retail to buy and sell through a digital platform now.
00:41:32
Speaker
So comparable to Zirdagro, nobody is there. Let me to be very frank with you. But CEPI came out with the guidelines three years back for online bond platform providers.
00:41:48
Speaker
So anybody who is selling bonds to the retail customer through a digital platform, it online, he should take that license. But before that, you should be a SEBI regulated broker, just like equity.
00:41:59
Speaker
It is the same process. Like, you know, you should be a member of BSE and NEC. SEBI will approve your applications. Once you are a BSE and NEC member, apart from taking membership of BSE and NEC, you should also take the membership as an online bond platform provider. This is one more additional requirement as compared to the e equity market.
00:42:18
Speaker
So this process has just started. It is just a very, very nascent industry right now. But, ah you know, excitement is really good. What I can see, the volumes are just increasing almost 200 to 300 percent every year.
00:42:33
Speaker
So the growth is very significant and for the obvious reason, because there is a clear advantage as compared to fixed deposits, debt mutual fund and keeping money idle in saving account and current account. And the money is huge.
00:42:45
Speaker
So more and more people are aware that, you know, some product like this bond is available where they can increase their rate return by three to seven percent. It is safe. It is regulated. It is secured.
00:42:56
Speaker
More and more people are coming in the bond market. Once they come in the bond market, trust me that they never go away. They know that you know the advantage is very high. It is an experience. So it is an experience which people you know are having right now that you know you can just buy and sell just like equities.
00:43:14
Speaker
Interest and principle is coming directly on your bank account. These are regulated. SEBI is also there in the picture. Right. So all those things are experienced for them. So once they go through this experience for three to six months, they start there.
00:43:28
Speaker
They start more allocation to the bond. So that is for sure. So I think coming back to your question, whether there is somebody as big as the current biggies of the equity market? No.
00:43:39
Speaker
But the potential is very high that, you know, in next five to ten years, you will see at least somebody making such big like zero time. And your company, Bond Bazaar, is one of those?
00:43:53
Speaker
Yes, we are one of those companies who are giving access to the retail public to buy and sell any corporate and government bond, just like equities, on a click of a button. Very transparent, very easy process.
00:44:06
Speaker
And it is anonymous trade, guaranteed settlement through BSE and NSE, just like equities. So this is a differentiator. Once they experience it, then you know it's a different ballgame.
00:44:17
Speaker
What is this anonymous trade? Why is that important? ah It is important. Like when you buy equity, do you know who is the buyer and seller? No.
00:44:29
Speaker
Okay. Got it. Okay. Anonymous trade in the sense transparency. See, please understand the biggest thing about anonymous trade. It big it it brings transparency.
00:44:41
Speaker
You know that when the anonymous trade in the equity market started? No.
00:44:47
Speaker
Do you know about Harshan Mehta case? Yes. Yes. So they used to go in the ring. Right? And then... didn't give details. i I mean, I have heard of Harshan Mehta case, but I don't know the details. No, no. Harshan Mehta, in the sense, what I'm trying to say that, you know, that was the era when people used to go in the BSE ring.
00:45:07
Speaker
where you know somebody they would be like in the ring they used to say yeah yeah yes i want to buy this reliance industry this was that was not an anonymous trade you know the buyer and seller okay there used to be a jobber and he used to say okay i want to buy this many shares and no other things then they used to report okay so the bond market you know used to be the same manner now the like this cash segment gives you a possibility then the entire digitization started in the somewhere in 95 or something like that.
00:45:35
Speaker
Now today it is much more transferred. The volumes have become, I don't know how many X because I'm sure even nobody, even the regulator is not calculating as compared to that era of 20 years, 25 years or 30 years back. Right. Because it's humongous.
00:45:49
Speaker
so It is because of digital anonymous trade and everything. The same thing is happening in the bond market where it anonymous digital trading. And so the volumes for the bond market you're saying.
00:46:01
Speaker
Yes, it was it is like the cash segment was available, but nobody was offering that platform in a user friendly manner. What we have done, we are using the same BSE, NAC cash segment to give a user friendly platform to all the retail investors.
00:46:16
Speaker
What does this cash segment mean? The cash segment is the same segment where equity, FNO, everything is available BSE and NAC. There also the bonds are also available to buy.
00:46:29
Speaker
But nobody knows that it is so easily available. Okay. so So we make it accessible to the retail investors so they can make really good use of the entire infrastructure.
00:46:40
Speaker
Easy buy. One click buy, one click sale. Okay. One click buy
Retail Interaction and Investment Options
00:46:44
Speaker
and one click sale. So in the past, how bonds would be traded would be through a broker network. Like you would have some broker, you would call your a broker and say, i want to sell or I want to buy and then he will talk to other brokers and find somebody who will be the counterparty and that's how it it would happen.
00:47:00
Speaker
No, no, Akshay, it was much worse, frankly. Okay. our First thing is, ah you don't know that which bonds are available to buy and sell. So you just say the broker that I want to invest something money. Can suggest something? So he will say, okay, what is your target yield? He may say that because I need 10%, 11%, 12% or whatever.
00:47:17
Speaker
And then he will suggest bonds. You don't have any way to check that, you know, these bonds are, you know, available at the same rate or something like this one. And unless until the volume is big, at least if you are not investing five lakh, ten lakh rupees, the guy will say entire thing is a manual exercise.
00:47:34
Speaker
Why should I invest so much time for you? And at the end of the day, I don't know whether you are going to execute the trade or not. Right. So once the trade is closed, then both the guys, what used to happen is actually the investors are supposed to transfer money to the broker's bank account first.
00:47:49
Speaker
So suppose if broker may not honor the commitment of transferring securities in your demand account, then it's a big fraud. like All those issues were there. So these were the complete manual process. Now it is a completely a digital process through the exchange mechanism. Everything is semi-regulated, which is really It is just like equities.
00:48:08
Speaker
Okay. Okay. Okay. Very interesting. And so as a retail user, if I want to go and buy a bond, then I can like, go look at different bonds, look at their price history, all the details. And then if I like a bond, then I can click on that bond. And then then I put in a bid for that, or it will already show me this is the price at which it is available. like What is the retail user experience like?
00:48:34
Speaker
So first thing is, once you come on the platform, so you know these are the bonds available to buy and sell. Let's say, see, there are more than 20,000 bonds available. On any given day, there are 3,000 to 4,000 bonds where the buy and sell quote is there.
00:48:46
Speaker
Not all the 20,000, 25,000 bonds.
00:48:49
Speaker
So what you can do, you can, it means that there is somebody else in the market who also wants to buy or sell, who is ready to buy and sell, right? There may be a buy and sell code both. So you may. Now what Sebi has done, Sebi has already put the guidelines that if any bond is available to buy, these are the minimum disclosure about the bond should be there, like information memorandum, which was issued at the time of initial offer that should be available for the retail or anybody.
00:49:15
Speaker
ah to check information about the company rating rationale should be available then basic information about the issuer and this particular ICIN like what is the rating, face value, maturity date, cash flow ICIN wise cash flow when you are going to get interest principle and everything and Savi has already put the guide so all those information is available so it is complete transparent before buying any bond Retail investors should check all the information about that particular bond.
00:49:46
Speaker
And if they are comfortable, then they also know that at what rate, what interest rate this bond is available to buy. Let's say the bond is available at 11%. If they think that this is not the right rate, I want 11.5%, so they can put their order.
00:50:00
Speaker
Of course, it will not be executed because the seller is at 11%. The seller may see that the buyer is at 11.5%. He can change his price just like it happens in the equity market and the order will be executed.
00:50:11
Speaker
Or he can buy at the same price. Or if there is no buyer and seller, still he can put the order. And somebody may see that some buyer is at 11.5%, he may put sale order. So this is how the market typically works.
00:50:23
Speaker
Just like equity. But the advantage is all the information about bonds are available on a click of a button because CBA has already put the guidelines. So, okay. Now coming to retail participation. Now you are recommending that if you have cash in your bank account, ah which is not earning any interest, then why don't you buy bonds because bonds are safe.
00:50:50
Speaker
you're getting better rate of interest and they're liquid, you can sell whenever you want to. um Wouldn't an even better argument be to buy a debt mutual fund, which is also investing in bonds, but then there is a professional who is deciding which bonds to invest in and it is equally liquid, a better rate of interest than putting your money idle in your bank account.
00:51:13
Speaker
So why should a retail investor directly participate in the bond market? Why not just buy a debt mutual fund, which is run by a professional who's investing in the bond market.
00:51:23
Speaker
So of course that choice is there. Of course many people should invest in the debt mutual fund. I'm not saying. But the you know, there is a cost.
00:51:35
Speaker
What is the cost? So if you invest directly in debt mutual fund, you are getting 6-7% return, right? So the cost is like debt mutual fund. Debt mutual fund, you can withdraw money anytime.
00:51:50
Speaker
Right. right So let's say Akshay want to invest money for three years and you go to the debt mutual fund. Now, problem debt mutual fund is it's a they can not invest more than one or two percent in one particular security.
00:52:07
Speaker
Second thing is they will invest in one month security or so, three months or so, five months or so, one year, two years, three years, four years, because, you know, they don't know when the withdrawal can start because people can withdraw money anytime.
00:52:21
Speaker
So that cost is also allowed one and a half. Let's say you have one month money, it can be let's say 7%, 8%. If it's a three year money, can be 9% to 10%. There is a duration premium is also available for your investment.
00:52:33
Speaker
oh Then as a debt mutual fund, you know, you will care keep 10%, 15% cash also. Because withdrawal can, if today the withdrawal is coming and bond market is illiquid.
00:52:45
Speaker
So all this inefficiency cost you around 3% to 4% vis-a-vis direct bond now let's say as a action you say that okay i want to invest in three years definitely it makes sense for you to go to if you invest for more than six months it makes sense for you to do a direct bond investment but let's say if you are investing for five days seven days ten days fifteen days you don't know when you are going to get need money that mutual fund is always a better option because you know rather than keeping this money idle in saving and a current account at least you are earning six to seven percent during that whole period
00:53:18
Speaker
So it is all about that, you know choose the right instrument based on your investment goal. Investment goal is the most important. Now, Akshay, you said about professionals and all that.
00:53:31
Speaker
Of course, very important. But tell me something that if you want to buy ah state guaranteed bonds, and you invest your time to study that bond for 6 months or 12 months, you have to just in you know experience it. Rather than study, experience it for 6 to 12 months.
00:53:48
Speaker
And you put some time of half an hour. If you're earning 3 to 4% higher returns, doesn't it make sense for you? Because, see, when we talk about mutual fund, equity requires entry and exit.
00:54:01
Speaker
Timing of entry and exit is more important. In bond, timing is not important at all. You have to invest when you have money to earn interest for each single day when you but you have money.
00:54:16
Speaker
Bond is regulated. There is a rating agency. There is already a professional rating agency who is giving credit worthiness of the bonds. Once you understand that one, your understanding is also clear. It is regulated.
00:54:27
Speaker
So just getting experience, you are earning 3 to 4% higher. Why to lose that? Okay, so equity doesn't have a rating agency equivalent, but in bond market, there is already rating agency because of which...
00:54:43
Speaker
you don't necessarily need to invest so much time in researching because there is a shortcut ah for research. so I always suggest one thing. Whenever you want to take exposure in the equity market, please go to the equity mutual fund managed by professionals. They know which company to buy, when to buy, because let's say the same. Okay, I give you the same now.
00:55:04
Speaker
Fortunately, you started with the Reliance Industry. Now I can use the same. Yeah. yeah yeah Reliance Industry is a good company. Yes.
00:55:13
Speaker
yes Yes, you agree, right? It's a good company. Completely, yes. So, Reliance Industry's share price was not going up from probably 2009, 10 to 2017, 18. I think to years was the same.
00:55:26
Speaker
Pre-deal. You are saying it is a good company? So, let's say during this period, Reliance Industry also borrowed money, maybe 7%, 8%, 9%.
00:55:34
Speaker
Have you got your interest? Reliance has paid regular interest, right? but So you don't require any expert to tell you that the company is going to make interest payment regularly. You will just buy this bond and you are earning 7, 8, 9%.
00:55:49
Speaker
but if you have bought reliance industries equity shares thinking it is a good company of course it is a good company nobody can doubt if you are in india it means it is if you buy it when it's an expert to say that today probably reliance industry is fairly priced so it is not a good investment it is not a bad company but at this price probably it's not a good investment frankly today also i don't know whether reliance industry I will buy the equity or not. I don't know whether it is a good price or bad price.
00:56:16
Speaker
But when it comes to the bond market, if they are there, I'm going to pay make 7% or 8% interest rate. I will suggest, I will recommend. There is no risk. You will get your interest payment. Okay. So...
00:56:29
Speaker
That's how I see where the professional intervention is required, where the professional intervention is not required. and Understood. Okay, fair point. um I'll tell you ah couple of queries I have as a user, as a retail user.
00:56:43
Speaker
So my first query is this, the liquidity risk. What if I buy a bond which is illiquid, that when I want to sell it, I'm not able to sell it? How real is that risk?
00:56:55
Speaker
And yeah are there any strategies to avoid?
00:56:59
Speaker
So ah let's go one by one. Are you buying bonds for trading purpose? Probably the answer is no. I will not ask people to buy bonds. So it is more to earn the interest, right?
00:57:13
Speaker
Yes, yes. Instead of keeping it idle in my bank account, like your perfect use case, like you have a couple of lakhs in your bank account, idle as a safety money, you put it in bonds. So let's say that's the use case.
00:57:24
Speaker
So actually, you know, and so actually there are two parts. so let me say one by one those parts, because, you know, probably I also started with this money is lying idle. So that is one scenario when the money is lying idle, but then you are losing much more, almost like 10 to 12%. So that is one scenario where, you know, you have to choose that if you require money after six months, you can buy the six months bond.
00:57:49
Speaker
Let's say if you think that the liquidity can be a problem, but at least after six months, the money will come directly in your bank account, something like that. That's how you can mitigate the risk. Okay. Second thing is actually we are harping more on the idle money. So let me correct it.
00:58:02
Speaker
It is also about fixed deposits. It is not only about money which is lying idle. It is also that you are investing in fixed deposits and debt mutual fund. Vis-a-vis you are getting 3 to 4% higher returns. So that money is also flowing.
00:58:14
Speaker
In case of fixed deposits, your tenor is fixed. Hmm. ah here also you can take a call on two years three years bond then there is a added advantage that you know you can sell bonds right that feature is developed see i will today when the liquidity is there you can sell and the liquidity is also there but to be very frank with you nobody will tell you that yes the bonds are buy and sold you experience it in certain securities the liquidity is always there There are out of 25,000. Like give me some examples. It is like, you know, government securities, there is a liquidity. There is a liquid bond like Power Finance Corporation, REC, PSE. Those bonds have liquidity. So you can buy those bonds where the liquid is slightly better.
00:58:57
Speaker
And does your platform tell me which bonds are more liquid?
00:59:02
Speaker
See, I don't say which bonds is more liquid than and those things because liquidity is not a criteria which is a subjective criteria. But but you could. my plan You could look at trading volumes and show them. Yes.
00:59:14
Speaker
So you have to experience it So once you spend 6 months, 12 months, so you will experience it. You can always say, okay, these bonds are where liquidity is normally available. the year The liquidity is not available. but Of course, my platform will show you where the liquidity because the buy and sell both quotes are available.
00:59:29
Speaker
You will experience Like zero that tells you that which bonds are, which equity are more liquid, which are not liquid. They will not tell you everything. But you know that if it is a Nifty 50s script or Sensex script, definitely it is liquid. It is a Z group script or something like this one.
00:59:46
Speaker
It may be less liquid. So that is a judgmental call which you know. or this The same thing is applicable to the bond market. So there are certain bonds here. Normally the liquidity is there. Certain bonds, liquidity is not there. You can take a call based on that.
00:59:58
Speaker
Of course, where the liquidity is less, it means the interest rate is slightly better. So it's a trade-off between risk and return. And last thing, see, again, what you can do if you if you are investing 100 rupees in the bond market, you can divide that 100 rupees into, let's say, 20 scripts.
01:00:16
Speaker
based on tenor that something can be five months, twelve months, two years, three years, four years, six years. Second thing is based on interest rate coupon also. It can be monthly, quarterly based on your requirement of funds.
01:00:28
Speaker
And the last thing based on the rating also. you can be certain bonds can be highly rated which are AAA available around 8.5% 8% something bonds can be A rated or something which are 10 to 11% so it is a mix of everything so actually by and large you will be mitigated from most of this liquidity risk interest rate risk credit risk because it's a fairly diversified portfolio which you have okay oh is Does the money directly come to your account on maturity or do you have to click something and withdraw the money from Nothing. You are not required to do anything. Interest and principle will come directly in your bank account. It will come directly from the issuer.
01:01:10
Speaker
okay they It will not touch any broker's account. It will come directly in your bank account. Okay. It's semi-regulation. It's a semi-regulated product. Got
Learning and Risks in Bond Investing
01:01:20
Speaker
it. So, it is still not... a very like a you know somebody who doesn't have much time uh for him it does need some amount of time investment because you need to uh build a portfolio of bond you're saying that uh it is safest to have a portfolio of bond at different maturity period so you need to build a portfolio and then also have a portfolio which has from triple a rating to triple b rating or like variety of ratings um so so it's it's not that uh
01:01:56
Speaker
like casual investors kind of a product.
01:02:01
Speaker
Okay. So one is, let me just try to understand your question slightly better. In fact, what you are saying that, you know, you are earning three to 7% extra return, which was missing till now.
01:02:15
Speaker
It is missing because you don't know about this. You don't have ah understanding. You don't have a experience of a product. Is it okay a situation? Would you like to learn something where you can earn 7% extra returns?
01:02:31
Speaker
It is your capital. Yes. See, growing capital, the impact of compounding is huge. If you compound your wealth at 10-12%, just imagine within 5 years you are doubling your money, which is huge, right? So that is first thing.
01:02:47
Speaker
So would you like to miss that 3-7% because you don't want to learn? Now what do you have learn? see i am not asking you to learn all the companies which are available in the bond market what you will choose something at company which is available at nine percent something is 10 something 11 12 and you might have you know invested small small amount and then once you know that these companies are good you continue to invest in the same companies let's say it is like kenra bank
01:03:20
Speaker
So you go on to the Canara bank, you have you know invested in the Canara bank fixed deposits. Once you know the Canara bank is safe, it is safe, right? But it is a effort. But once you invested in the FD of Canara bank, probably you'll continue to invest in the same FD forever in your life. So it's a one-time learning.
01:03:38
Speaker
After that, you continue to do the same thing. So why not to do the same thing in the bond market? So once you learn about one company, you invested, you're given money to that company. And if your experience is good, you will continue to do the same in investment journey.
01:03:52
Speaker
And you keep on adding one company whenever the new things arise. It doesn't take much time. okay And most of these companies, the big issuers, are listed companies in the equity market.
01:04:03
Speaker
But sometimes there is a high like Sheeran Transport. Bond is also available by equity. Reliance industry, L&D Financial Services, Tata Power. Many, many, many companies which are raising money to the bond market are also there in the equity market. Means you have a basic understanding about the company.
01:04:20
Speaker
There's a high possibility you may have a basic understanding. It's not difficult. Like ah banks are also raising money from the bond market. So if you know a State Bank of India, you know State Bank of India.
01:04:32
Speaker
What else you want to know? You just want to know that what is it. Would have like say 7-8% rate of interest. i mean itll Banks typically give you around 8% of the 8% rate. But it is still better than bank FDs which is available at 6-6.5%, right?
01:04:47
Speaker
True, true, true, true. Okay, so ah tell me something. ah What happens in case of... for financial problems in a company so if a company is listed is that has a credit rating of triple b for example that means that the credit rating agencies saw that there are some risks with this company now ah triple b rating means that the bond will pay more rate of interest and i would be tempted to just straight away go and buy only triple b rating
01:05:18
Speaker
But what is the risk in that? What happens if there is financial stress in the company? ah Give me some ah use case, like some real world example to ah explain this.
01:05:31
Speaker
So, ah of course, there is a credit risk. And credit risk is always there whenever you lend money to anybody. If you lend money to your friend also, there is a credit risk. He may or may not pay you back, right?
01:05:46
Speaker
yeah Same manner, if the credit risk is there with the banks also, like banks also defaulted in the past, whether is Yes Bank, whether it is many cooperative banks who have defaulted. So same manner, there is a risk, great risk in the bond market.
01:05:59
Speaker
So that's why you should be very clear about trade-off between risk and return. Or I always say risk adjusted return. If you are talking about BBB plus type of instrument, vis-a-vis AAA,
01:06:13
Speaker
ah the interest rate differential can be as high as 5%. It means you should put more efforts to understand that company and track it more closely because you are getting 5% higher return as compared to safest bond.
01:06:26
Speaker
So that is one thing should always be done. Now what? Let's say companies have defaulted in the past. Of course they have defaulted. Like if I have to talk about the real-time case, it can be let's say DHFL. It is ILFS.
01:06:40
Speaker
They borrowed money from the bond market. They defaulted in the bond right But like in DHFL, it was ah secured by assets of the company. So people have recovered to the extent of 40% of their principal amount.
01:06:53
Speaker
So it was secured. But as I, you know, even in my ah interaction with various people, I say that with each and every problem which happened in the bond market, once in a blue month, there is always some default happens.
01:07:08
Speaker
you know some default can happen. But regulators become much more vigilant after that. They put more and more regulations around that. Rating agency become much more vigilant because it's a developing market.
01:07:19
Speaker
It is not a completely fully developed market. So the regulations have improved a lot since last default which happened had in 2018. 2018 ILFS and crisis default happened.
01:07:31
Speaker
So in the last seven years, there's been no default in the bond market. Very small things might have happened, but not any big thing. Okay. The small things definitely the the people who are paying any interest rate which is more than 14%, 15%, 18%, let's be very clear that they are very risky in those instruments. The default will keep on happening. But most of the investors are very, very informed investors. So they are aware that what type of risk they are taking.
01:07:58
Speaker
Okay. Correct. So, so ah see, I always say that target your yield based on your risk appetite. So if you are in the range of 9% to 11%, 12%, normally you are most of these bonds are in a safe category bond.
01:08:14
Speaker
So the risk is very low. And the probability that something going wrong in the ah you know and near future is low. So whenever you are talking about low rated bond, triple B minus and all that, be clear that it is it's it's a short tenor bond so that you know in short tenor, probably the perspective much better than, you know, company may not default the next six months, 12 months or 18 months type of period or something like that.
01:08:39
Speaker
So a couple of things. One is bond market is regulated by CB. So if some default happens, so the venture trustee is there, what he will do, he will sell the assets of the company and recover the money and distribute this money to all the venture holders.
01:08:53
Speaker
So that one thing is there. ah Once this default happens, can I sell it off? Do I have liquidity? Like, like for example, you said 40% of the amount of the bond was recovered for DHFL.
01:09:08
Speaker
But I don't want to wait for that recovery process to happen. It would be... Yes, the trading happens. Yes, you are right. okay Okay. Even if after the default, yes, you can trade in the bond. Take a bet that, okay, this bond, I will give you 20% the value today only. and Absolutely. And that's my headache to wait until whatever is recovered.
01:09:26
Speaker
So you can recover some value of it. Yes, Akshay. In fact, in the DHFL, DHFL also, lot of trading happened post default also. People got their exit.
01:09:38
Speaker
Because somebody was ah expecting that some recovery would happen and therefore there was a buyer for... Absolutely. So even after the default, the trading in the bond never stopped.
01:09:49
Speaker
It continued trade. It's a tradable instrument. But it would be at a massive discount because it is... Yes, once the default happens, it can be at a massive discount. And that's why it is important that, you know, people should diversify their portfolio.
01:10:02
Speaker
Just give one example. If you are on a diversified portfolio, if you are earning 5% extra return, 5 to 7% extra return. It means what? That first year, if you have done the proper diversification, you earn 5% extra. a Second year, earn the 5% third year. It means every year your cushion goes up by 5%. Because after that, even if there is a 5% NPA, which is the rarest case, right it is not that in bond market default happens every second day. Otherwise, bond market is more regulated as compared to any other market buyer.
01:10:31
Speaker
yeah It is much more equitable. The investor expects to get the money back. It's a loan. It's loan. So the good part is if you don't invest in the bond market, if you invest in the debt mutual fund, if you invest in the fixed deposits,
01:10:48
Speaker
I have a counter argument to that one that any issue year you are losing 5 to 7 percent every year it is like an NPA for you right and you are not going recover that money. okay thank So the alternate option of not investing in bond it means you lost that money and if you compare with saving account and counter account means you are losing 10 percent every year.
01:11:07
Speaker
In three years, you lost almost 40%, right? Yeah, yeah, yeah. Okay, understood. So that is also a worse situation for you. Yeah, okay. Okay, so let me end with this. Give me five bonds that you recommend as investments.
01:11:27
Speaker
ah thank you No, I can't give any recommendation on this podcast or in this interaction.
01:11:38
Speaker
It is regulatory-wise not allowed. Once you become a customer, all the bonds are available on the platform. Even you know my newsletter and other things are daily published where the bonds which are available to buy and sell or bought and sold yesterday, all the details, everything is available. but But how do I learn? i want to learn about which bond to invest in. How do I learn that?
01:11:59
Speaker
I don't want to buy a bond and then learn. i want to learn a little bit before I buy. Of course, you should learn before you buy. What you can do, they like for for what we have also done, we we have certain videos for people, what is bond, how the rating works, and all other things. are know So that we made this video. So, okay, that much is done. But how do I learn about...
01:12:20
Speaker
Whether I should buy a Reliance bond or I should buy L&T bond or which, I mean, you know, there there are so many information sources for equity, like advice. this is a So,
01:12:32
Speaker
once you become a customer, you, of course, ask more information, more things about a particular bond and we support you in your investment. As a broker, I can help you in the investment. Once you become a customer.
01:12:43
Speaker
So since you are asking on this in your like life, think this is not allowed by the regulator. But once you become a customer, then of course we help you in your investment journey.
01:12:54
Speaker
ah You ask bonds which are available. But you are a digital platform. How would you help? Like is there a chatbot there through which I ask for advice or what? like So, one RM is always allocated to one customer the initial in their journey so that they can always ask those questions to that RM that, you know, these are my queries. Is there a minimum ticket size of investment that is needed to participate? 100 rupees for government bonds, 1000 rupees for corporate bonds.
01:13:24
Speaker
So, how do you afford the salary of an RM with such small ticket sizes? but trust me that nobody see there are two parts in any market development one part is development phase and second part is matured phase once it is a mature phase you are not going to waste time by asking rm which bond to buy you know that how to select that 10 11 percent bond you will do and in development phase any which everybody has to invest in this all type of infrastructure digital infrastructure also and physical infrastructure right so give you one perspective that you know nobody comes here to invest uh you know only thousand two thousand five thousand rupees uh right uh they start their journey maybe small maybe lakh rupees but then they the each and every penny start moving towards bond market because it's a common sense that you know
01:14:11
Speaker
you are earning 5 to 7 percent higher returns.
Revenue and Future of Bond Markets
01:14:13
Speaker
Why not? Second thing is at some stage you also think that why I'm taking the equity risk of 15 percent. I don't know whether I'm going to get 15 percent return or not. Why I can't settle for 12 percent return, which is better, right?
01:14:23
Speaker
So see, Akshay, I have to help in your initial journey. You want to learn about bonds. You learn about a particular bond, in general bonds, and you want to experience this. I have to give you that experience. And after that, everything is automated.
01:14:39
Speaker
and how The pain is already sorted out to buy and sell, which is digital. Learning sometimes can be a digital also. Sometimes it requires human intervention also. So we are doing more.
01:14:51
Speaker
How do you earn? If I'm investing 5 lakhs through the platform, what is your earning in that? See, I charge the issuers. Okay. Okay. Let's say I am doing one. Secondary means it is listed on the NSE. There is some somebody. So there I don't handle there i don't you know earn anything. You are absolutely right. Because this platform is the free for the buy and sell. But primary income is good enough for me.
01:15:16
Speaker
Because normally people, ah you know, once I... see Because secondary market is slightly liquid. Once you bought the bonds you want to sell, So it's a combination of both primary and secondary, but primary market income is good enough for me to make money.
01:15:30
Speaker
Okay. So basically you make money through IPOs, like in simple manner. Whether it is debt IPO or privately placed bonds, that's where I charge the issuer and that's where make my money. Okay. Okay. For a privately paid placed bond, then you are like a merchant bank and then you charge the merchant bank kind of fees.
01:15:46
Speaker
Correct. Correct. Absolutely. Okay. Okay. And what is the fees typically a merchant bank charges? It varies from the issuers to issuers. Frankly, it is... I mean, like, ah is it in basis points? Is it in single digit percentage?
01:16:01
Speaker
What is it? It is always in single digit percentage. Definitely much lower than that one. But it is good enough for you to do this. and See, you are providing service to both the customers. Right, right, right. I mean, like, there's... I mean, the... the The intermediary needs to earn his take, right? I am not in any way.
01:16:24
Speaker
Intermediary needs to earn their thing. And I tell you one more thing. Okay, let me just say that in the information memorandum, the fees is disclosed. The ranger, how much fees they have made. SEBI has taken care of retail interest like anything. Don't worry about that one. So, fees, whatever they earn, it is mentioned in the information memorandum. It is not an undisclosed thing.
01:16:46
Speaker
The trading volume that you see on your platform, ah what percentage of that is IPO and what percentage is secondary? See, it is almost like 25% is secondary and the rest is the primary market. once you know Where you know we help them in their investment journey and the rest of the thing is secondary market.
01:17:06
Speaker
That is… Okay. So, that kind of ah sounds… ah I mean, in equity, the IPO would be like maybe 5% and 95% would be secondary, right? It sounds a little... hu But that is that's where the difference is because, you know, bonds mature every year. Let's say one guy has issued three-year bonds.
01:17:26
Speaker
After three years, this bond will mature. He will raise again money at the three years, right? So that's why the primary will be much higher. like as we were talking about reliance industry, he raised equity through once, right?
01:17:40
Speaker
It is done. Now he's not going to raise money again from the equity market, but bond market is raising every month, every year and continue to raise till the lifetime of the company. So bond market primarily c see this market in this manner.
01:17:55
Speaker
it is but It is a primary market mainly because whenever the fresh borrowing is done, the bonds are available for everybody to invest. Secondary market gives you Secondary market is only easy exit when you want. pretty Okay. yeah the The point of bond market is not secondary. It's there if you need it but the point is primary. That's what you're saying.
01:18:15
Speaker
yes Yes. Okay. Interesting. And for an investor, is there an advantage of entering at the IPO of phase versus entering through the secondary market phase? Not really.
01:18:26
Speaker
Doesn't matter. There is no advantage either. There is no advantage. It is it is more that not a pricing advantage is more that, you know, when somebody is raising, let's say 500 crore, you can decide that I want to invest 5 lakh rupees also. I can invest 5000 rupees also. I can invest 5 crore also, 50 crore also.
01:18:46
Speaker
Right. all the options are but when you uh in the secondary market in the same particular company same maturity if you want to invest 50 lakh rupees at that particular day 50 lakh rupees of sailor may not be there right right okay okay okay interesting very interesting uh is there an opportunity for uh like you know in equity market you have the robo advisory model where there is an algorithmic trading that happens on equities is there an opportunity for that in the bond market
01:19:17
Speaker
Three years time it is going to come. Definitely it is going to come. Right now you are talking about ah basic thing, basic understanding and all other things. There the digital, like ah the way we are talking and decoding the bond market is more important.
01:19:32
Speaker
one Once you are one level above the basic understanding. and advanced, then you say, OK, now I understood everything. So through the robo advisory, just help me to select the bonds and all that. It is already started. We have attempted something in our recent app launch, which we have done just 10 days back.
01:19:50
Speaker
It is a first attempt based on your behavioral pattern, based on your likings. We start, ah you can start looking at those bonds. okay it will It is already started.
01:20:02
Speaker
tre Yeah, it started in that manner. It's a one step towards this journey, but this will become a much more prominent journey in the near future. like Like Netflix, if you watch a Bollywood movie, it will show you more Bollywood movies.
01:20:18
Speaker
ah Yes, yes, of course. See, it's a world of AI now. yeah thank you to So everything will start moving towards that sooner than the later. Yes, yes, yes.
01:20:29
Speaker
Okay, interesting. ah okay Okay, awesome. Thank you so much for your time, Suresh. It was a real pleasure. yeah Thanks. Thanks a lot. Thanks.