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Fixed Income Securities – Investing Process, Regulations, Platforms | Chapter 3

By Aspero

  • August 1, 2023
  • 6 min read

In our previous blog, we delved into a comparison between Fixed Income Securities & Equity Investments; we learned about some of the risks associated with Fixed Income and the essential things to consider before investing in fixed income instruments.

Kudos to you for making it to the final chapter! In the final chapter of our guide to fixed income securities, we will answer your questions on how to invest in such instruments, how this segment is regulated in India, and the process you need to follow to invest in fixed income securities. Let’s dive in.

To read the second chapter, click here.

What is the process for investing in fixed-income securities?

Obtain a PAN (Permanent Account Number): Ensure you have a PAN card, as it is mandatory for investing in fixed-income securities in India.

Open a Demat Account: Select a registered Depository Participant, such as a bank, financial institution or broker, and open a Demat account. This account will hold your fixed-income securities in electronic form.

Select a Broker or Financial Institution: Choose a broker or financial institution that offers access to fixed-income securities. Ensure they are registered with the Securities and Exchange Board of India (SEBI) and have the necessary permissions to trade in fixed-income securities. You can find the list here.

Complete the Account Opening Process: Open an investment account with the selected entity. Submit the required documents, including KYC (Know Your Customer) documents, identity proof, address proof, and bank account details.

Research and Selection: After determining your investment objectives and goals, conduct thorough research on various fixed-income securities available in India, such as government bonds, corporate bonds, or other debt instruments. Consider factors such as credit rating, interest rate, maturity, liquidity and security cover to make informed investment decisions.

Place an Order: Once you have identified the fixed-income securities you want to invest in, place an order with your broker or financial institution. Specify the quantity, price, and any other relevant details. Some securities can be purchased directly from government agencies or through designated intermediaries.

Complete the Documentation: Fill out the required application forms for the chosen fixed-income securities. Provide the necessary details, including the Demat account details, investment amount, and payment instructions.

Make Payment: Transfer the required funds from your bank account to the investment account. Follow the instructions provided by your broker or financial institution for making the payment.

Monitor Your Investments: Regularly monitor the performance of your fixed-income securities and stay informed about any updates or changes that may impact their value. Keep track of interest payments, maturity dates, and other relevant information.

How are fixed income securities regulated in India?

Fixed income securities in India are regulated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). These regulatory bodies oversee and regulate various aspects of the fixed income market to protect investors and ensure fair and transparent practices. Here are some key aspects of how fixed income securities are regulated in India:

Securities and Exchange Board of India (SEBI): SEBI is the primary regulatory authority for the securities market in India. It formulates rules and regulations to govern the issuance, trading, and settlement of fixed income securities. SEBI ensures that issuers comply with disclosure norms, pricing guidelines, and other requirements to protect the interests of investors.

Reserve Bank of India (RBI): The RBI is the central bank of India and plays a crucial role in the regulation of fixed income securities, particularly government bonds. It issues and manages government securities, such as treasury bills and bonds, to meet the borrowing requirements of the Indian government. RBI sets the guidelines for the issuance, auction, and redemption of government securities.

Credit Rating Agencies: SEBI regulates credit rating agencies in India, such as CRISIL, ICRA, Acuité, India Ratings, etc., which assess the creditworthiness of issuers of fixed income securities. These agencies assign credit ratings to the securities based on their evaluation of the issuer’s ability to meet their debt obligations. Investors often use these ratings as an indicator of the risk associated with investing in a particular fixed income security.

Disclosure and Listing Requirements: SEBI mandates specific disclosure and listing requirements for issuers of fixed income securities. Companies and institutions issuing bonds or debentures are required to disclose essential information to investors, such as the purpose of the issue, terms of security, financial statements, and risk factors. Additionally, securities issued by entities like companies, municipalities, and government bodies may need to be listed on recognized stock exchanges.

Investor Protection Measures: Both SEBI and RBI work to protect the interests of investors in the fixed income market. They monitor market activities, investigate potential fraud or market manipulation, and take action against entities engaging in unfair practices.

Market Surveillance: SEBI employs market surveillance systems to monitor trading activities in the fixed income securities market and ensure market integrity and stability. This helps detect any unusual or suspicious trading patterns and facilitates timely intervention if required.

It’s important to note that regulations and guidelines may change over time, so it’s best to check with the relevant authorities or updated sources for the most current information on the regulation of fixed income securities in India.

Where can you invest in fixed income securities in India?

In India, fixed income securities can be purchased through various channels, including the following:

Banks: Most commercial banks in India offer fixed deposits (FDs), which are a type of fixed-income security. Individuals can open FD accounts with banks and earn a fixed interest rate on their deposits for a predetermined period.

Post Offices: India Post offers various fixed-income investment schemes, such as the Post Office Monthly Income Scheme (POMIS) and Post Office Time Deposit (POTD). These schemes provide a regular income stream at fixed interest rates.

Stock Exchanges: Retail investors can also buy fixed income securities like bonds and debentures that are listed on recognized stock exchanges in India. These securities can be purchased through a brokerage account.

Mutual Funds: Some mutual funds in India invest in fixed-income securities, such as government bonds, corporate bonds, and other debt instruments. Investors can buy units of these mutual funds to gain exposure to a diversified portfolio of fixed-income securities.

Primary Issuance by Corporates/Government: When corporations or the government issue bonds or debentures, retail investors can participate in the primary market by submitting bids during the issuance period.

Non-Banking Financial Companies (NBFCs): Certain NBFCs may issue fixed-income products like Fixed Deposit schemes or Non-Convertible Debentures (NCDs), providing an opportunity for investors to earn fixed returns.

Online Investment Platforms:  In recent years, there has been a rise in the number of Online Bond Platform Providers (OBPPs) that offer debt securities to non-institutional investors through public issuances, private placements, and the secondary market. These OBPPs are often fintech companies and are supported by SEBI-registered intermediaries and stock brokers, providing investors access to the bond market.

Are Online Bond Platform Providers (OBPPs) regulated? 

Yes, Online Bond Platform Providers (OBPPs) in India are regulated by SEBI. In November 2022, SEBI notified a framework for entities operating or desirous of operating as OBPPs. Under the framework, OBPPs need to register themselves as stock brokers in the debt segment of a stock exchange. They are also restricted from offering products other than listed debt securities on their platforms.

OBPP rules - fixed income securities

The SEBI framework for OBPPs is designed to protect investors and ensure the orderly functioning of the online bond market in India. It is a welcome development that will help to boost retail participation in the bond market.