It has been centuries since people have been investing for future returns and financial benefits. As time has passed, the forms of investments have changed a great deal. There was a time when retail investors were confined only to fixed deposits and debt funds, but today, we have a large variety of instruments that guarantee a fixed income. There are umpteen platforms that have come up in the past few years. And with online platforms emerging, investing in bonds has become simpler.
Investment in bonds is possible through brokers as well. The only thing which is required is a trading account. The unique factor about these online platforms is that they provide extensive portfolios on bonds and other financial instruments. Such online platforms serve as self-service kiosks with relevant details about the bonds in simple layman’s language. They also have other relevant information about pay-outs, credit ratings and other information required.
Fixed income Instrument for Retail Investors
A bond is a liability that an investor gives to the borrowing institutions like government organization, municipal corporation, or any other form of borrowers. The holder of the bond lends to the issuer of the bond based on a promised interest payment and repayment of the principal amount at the time of maturity.
What do online platforms have to offer?
The online platforms talked about here have a lot to offer. They provide a large variety of corporate bonds, tax-free and perpetual bonds which include a wide range of credit ratings and maturity profiles with periodic playout options. A few online platforms hold an inventory of bonds which means that buying and selling are possible, and a few platforms bring together buyers and sellers only. Trading is not possible on such platforms as they remain like an over the counter offering (OTC).
One can view all the minute details of the bond on such platforms such as current market price, coupon rate, one’s return on a bond which is held till maturity, maturity date and expected cash flows. Other than bonds, fixed deposits, commercial papers, and other financial instruments are also available.
Before one begins online trading, one needs to complete KYC formalities by filling up basic information and uploading supporting documents like Identity proofs, Address proofs, etc. this entire process can be done online. A Demat account is to be opened for online investment procedures. For virtual investment, that is to learn how to invest in bonds, there are plenty of virtual investment platforms available like money Bhai, money control, etc.
Usually, such online investment platforms do not charge anything on the transaction. A few may provide limits on the number of transactions. Online platforms which have an inventory kind of model, purchase bonds in bulk just like wholesale buying and then make them available to retail investors.
Since investment processes come with risk factors, it is important to regulate such financial instrument selling platforms. There are many government organizations that form regulatory bodies to make the functioning of any such platforms smooth and judiciously clear.
While the emerging fixed income platforms have made it easy, convenient, and hassle-free, to invest in bonds online, investors should consider a few points before they make the first move.
Benefits of the Online Platforms –
- Quick and convenient signup and Know Your Customer, KYC process.
- Large variety of financial instruments available to choose from.
- Every minute of information available on the cash flow, ratings, yields, etc.
Challenges Faced by Investors on Online Platforms –
- High minimum investment amount on a few platforms.
- All platforms do not allow buying and selling. Some are just market making places or a price discovery forum
- Not all platforms are completely regulated
- Risk of frauds.
A few things to consider while investing in bonds online.
- Unwarranted speculations.
Investing decisions are made on the present status of interest rates rather then where they shall be. Hence follow an investment strategy where you are likely to achieve your financial objectives. Speculating is like a gambling.
- Invest and reinvest.
It is suggested to do financial planning with a financial objective like getting regular or lump sum cash flow.
Allow the money to grow by reinvesting and reaping the benefits of compounding.
Understanding the costs involved.
If you invest through brokers then have clarity on what are the costs involved in the entire buying process of the bonds so that you are aware of the commissions, compensation, etc.
- Know your bond.
It is always advisable to consult the expert to understand more about investing in bonds online. Also, make sure you know the broker and that you know you and your requirements, risk tolerance, etc. one must know their broker’s credentials and histories.
- Investment due diligence
Every investment instrument comes with a brochure or prospectus. One needs to pay proper attention to the terms and conditions mentioned on the prospectus. One must also know that not all government bonds funds have sovereign risk. So, such facts and figures should be well learnt.
If an investor wants to minimize the risk of any bond issuer being a fraud or a default, then they can choose AAA-rated bonds. Most platforms also offer lower-rated papers with maximum returns.
Bonds that have been subject to stringent processes are only offered to investors to cut down the risk factors. Also, while purchasing bonds on such online platforms is easy and convenient, selling before they get mature might not be as easy as it looks. They must be held until maturity for selling purposes. If they are AAA-rated bonds with adequate liquidity available, then it would be a different case altogether.
How does Rurash simplify investments in Bonds and other Corporate FDs?
At RURASH, we provide well-researched investment on the bond issuing company. As the leading investing company with UHNI and NRI portfolios our relationship managers will make sure that our client portfolios exclusively invest in the bonds that come with AAA – A ratings from the authorized credit rating agencies.