NSE, BSE caution investors investing through online bond platforms

NSE and BSE advise bond investors using online platforms to assess risk, returns, and issuer creditworthiness before proceeding with investments

The National Stock Exchange (NSE) and BSE have advised bond investors, using online bond platforms, to weigh the risk and return on corporate bond investments against their credit ratings.

 

“Lack of awareness or understanding of these aspects can result in misjudged risks and potential capital loss. Therefore, investors are strongly advised to conduct due diligence before proceeding with any bond investment,” the exchanges said in a release.

 

As a result, a rating-wise risk scale, similar to the mutual funds’ risk-o-meter, can be considered to help investors make informed decisions.

 

 

Additionally, the exchanges advised the bond investors to be mindful of taking into account the bond’s credit rating, the issuer’s track record in timely repayments, the liquidity of the instrument, settlement timelines, and the tax implications of the investment.

 

“…it is crucial to verify that the platform is a Sebi-registered Online Bond Platform Provider (OBPP),” the statement said.

 

The exchanges also explained the yield to maturity (YTM), the total annualised return an investor can expect if the bond is held until its maturity, is not a guaranteed return as it fluctuates based on factors such as changes in market interest rates, liquidity conditions, time to maturity, and the creditworthiness of the issuer.

 

Also, if the bond is sold before maturity, the actual return may differ significantly from the indicated YTM.

 

Generally, when a bond’s price is below its face value, its YTM is higher than its coupon rate, and vice versa.

 

Similarly, the exchanges have cautioned the investors that the coupon rate-- fixed annual interest paid by the issuer -- is not risk-free and is dependent on the financial health and credit reliability of the issuer. Any delay or default in payments can adversely affect investor returns.