The Securities and Exchange Board of India (Sebi) is weighing a plan to deepen India’s corporate bond market and draw in retail investors by allowing bonds to be represented digitally and traded in tokens or smaller units. Will such steps move the needle for a segment that’s fallen behind its counterparts in retail participation? Mint explores.

What is the regulator’s plan?

Sebi chairman Tuhin Kanta Pandey, speaking at an event on Tuesday, said the regulator will examine if tokenisation can improve transparency, settlement efficiency and liquidity in the corporate bond market.

Tokenization refers to converting a real-world financial asset into a digital token that can be recorded and traded electronically. In this case, corporate bonds would be represented digitally through tokens that investors can buy and hold. The technology behind the system is the distributed ledger technology (DLT), commonly associated with blockchain systems.

DLT is a decentralized infrastructure that allows multiple participants to securely record and share digital data across a network. Unlike traditional databases, DLT operates without a central authority or single point of failure.

Though a framework has not yet been introduced by Sebi, market participants said a trustee-based structure may be formed. “Conceptually a token framework could be done through a trustee. A company will issue the bond and a trustee will convert it into a token. The issuer will then have to pay principal and interest to the trustee, which can be distributed to investors,” said Nikhil Aggarwal, founder and group chief executive officer at Grip Invest, a Sebi-regulated investment platform.

Has DLT been tested before in India?

India, through the pilot project, is on the path to its first-ever tokenised financial asset. However, the DLT framework has been utilised limitingly in other contexts.

The National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) currently use blockchain-based systems to monitor security creation and covenant compliance in non-convertible securities. These systems digitally track the lifecycle of corporate bonds and reduce manual intervention and compliance risks.

While India has not yet implemented a full-scale tokenized bond market, these use cases suggest regulators and market infrastructure institutions are becoming increasingly comfortable with blockchain-based systems. The Reserve Bank of India’s central bank digital currency initiative has also accelerated discussions around tokenization of financial assets.

“With the RBI having created a digital currency, there is an opportunity to tokenize all financial assets. This, I believe, is the intention of the regulator to propose the concept of tokenisation of bonds. The details and mechanics are keenly awaited through Sebi's robust process involving industry consultation,” said Aggarwal.

Will this improve liquidity in the corporate bond market?

India’s corporate bond market remains dominated by institutional investors, while retail participation remains limited. Debt mutual funds manage ₹19.31 trillion worth of assets, compared to ₹35.8 trillion held in equity mutual funds.

Similarly, companies raised ₹11,343 crore in public debt, forming 1% of debt raised through private placement worth ₹9 trillion. Industry executives believe tokenization could gradually improve liquidity by lowering ticket sizes and widening investor participation.

“Liquidity in the bond segment may not increase overnight but this is a clear sign that the central government and the market regulator want to deepen India’s debt market. We are expecting some impact on liquidity,” said Vineet Agrawal, co-founder of investment platform Jiraaf.

Retail investors were often unable to purchase bonds due to their high ticket sizes. However, with tokenization ticket sizes or face value of a bond may reduce, helping the segment gain traction from investors with smaller pools of capital. For instance, a bond with a face value of ₹100,000 could be bought in the form of a token worth ₹1000.

Mom-and-pop investors consider returns of 11-12% when investing in bonds, which are usually issued with a face value of ₹10,000 or ₹100,000. Market participants said a retail investor usually spends ₹60,000- ₹80,000 on a bond.

However, the impact of tokenization hinges on the fine print. Cost, accessibility and ticket size would matter the most to ensure retail investors are drawn to the segment. The regulator has to ensure that the cost of tokenization is low, ticket sizes are significantly reduced and the tokens are accessible across distribution platforms.

Who will such a framework benefit the most?

Market participants believe the framework could benefit both issuers and investors, though the biggest incremental gains may come for retail investors. Institutional investors already have access to the corporate bond market through existing channels, while retail investors remain constrained by high ticket sizes and limited accessibility.

Tokenization could allow investors to buy smaller portions of bonds digitally, potentially widening participation in fixed-income products.

“For an issuer, a token becomes attractive as they can reach more investors, and for an investor, it becomes lucrative as they can purchase bonds at lower face value. Increasing more retail participation will help deepen market liquidity and also invite more issuers,” said Agrawal from Jiraaf.

Issuers may also benefit from wider distribution and potentially stronger demand for corporate debt securities. Tokenization could create benefits on both sides of the market by helping issuers access more investors while making corporate bonds easier for retail investors to buy and hold.

“We are waiting for a formal consultation paper for better clarity on how the framework would work. Though the technology used in tokenization is not new, rules for issuers and distributors need to be seen,” he added.

The Securities and Exchange Board of India (Sebi) is weighing a plan to deepen India’s corporate bond market and draw in retail investors by allowing bonds to be represented digitally and traded in tokens or smaller units. Will such steps move the needle for a segment that’s fallen behind its counterparts in retail participation? Mint explores.

What is the regulator’s plan?

Sebi chairman Tuhin Kanta Pandey, speaking at an event on Tuesday, said the regulator will examine if tokenisation can improve transparency, settlement efficiency and liquidity in the corporate bond market.

Tokenization refers to converting a real-world financial asset into a digital token that can be recorded and traded electronically. In this case, corporate bonds would be represented digitally through tokens that investors can buy and hold. The technology behind the system is the distributed ledger technology (DLT), commonly associated with blockchain systems.

DLT is a decentralized infrastructure that allows multiple participants to securely record and share digital data across a network. Unlike traditional databases, DLT operates without a central authority or single point of failure.

Though a framework has not yet been introduced by Sebi, market participants said a trustee-based structure may be formed. “Conceptually a token framework could be done through a trustee. A company will issue the bond and a trustee will convert it into a token. The issuer will then have to pay principal and interest to the trustee, which can be distributed to investors,” said Nikhil Aggarwal, founder and group chief executive officer at Grip Invest, a Sebi-regulated investment platform.

Has DLT been tested before in India?

India, through the pilot project, is on the path to its first-ever tokenised financial asset. However, the DLT framework has been utilised limitingly in other contexts.

The National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) currently use blockchain-based systems to monitor security creation and covenant compliance in non-convertible securities. These systems digitally track the lifecycle of corporate bonds and reduce manual intervention and compliance risks.

While India has not yet implemented a full-scale tokenized bond market, these use cases suggest regulators and market infrastructure institutions are becoming increasingly comfortable with blockchain-based systems. The Reserve Bank of India’s central bank digital currency initiative has also accelerated discussions around tokenization of financial assets.

“With the RBI having created a digital currency, there is an opportunity to tokenize all financial assets. This, I believe, is the intention of the regulator to propose the concept of tokenisation of bonds. The details and mechanics are keenly awaited through Sebi's robust process involving industry consultation,” said Aggarwal.

Will this improve liquidity in the corporate bond market?

India’s corporate bond market remains dominated by institutional investors, while retail participation remains limited. Debt mutual funds manage ₹19.31 trillion worth of assets, compared to ₹35.8 trillion held in equity mutual funds.

Similarly, companies raised ₹11,343 crore in public debt, forming 1% of debt raised through private placement worth ₹9 trillion. Industry executives believe tokenization could gradually improve liquidity by lowering ticket sizes and widening investor participation.

“Liquidity in the bond segment may not increase overnight but this is a clear sign that the central government and the market regulator want to deepen India’s debt market. We are expecting some impact on liquidity,” said Vineet Agrawal, co-founder of investment platform Jiraaf.

Retail investors were often unable to purchase bonds due to their high ticket sizes. However, with tokenization ticket sizes or face value of a bond may reduce, helping the segment gain traction from investors with smaller pools of capital. For instance, a bond with a face value of ₹100,000 could be bought in the form of a token worth ₹1000.

Mom-and-pop investors consider returns of 11-12% when investing in bonds, which are usually issued with a face value of ₹10,000 or ₹100,000. Market participants said a retail investor usually spends ₹60,000- ₹80,000 on a bond.

However, the impact of tokenization hinges on the fine print. Cost, accessibility and ticket size would matter the most to ensure retail investors are drawn to the segment. The regulator has to ensure that the cost of tokenization is low, ticket sizes are significantly reduced and the tokens are accessible across distribution platforms.

Who will such a framework benefit the most?

Market participants believe the framework could benefit both issuers and investors, though the biggest incremental gains may come for retail investors. Institutional investors already have access to the corporate bond market through existing channels, while retail investors remain constrained by high ticket sizes and limited accessibility.

Tokenization could allow investors to buy smaller portions of bonds digitally, potentially widening participation in fixed-income products.

“For an issuer, a token becomes attractive as they can reach more investors, and for an investor, it becomes lucrative as they can purchase bonds at lower face value. Increasing more retail participation will help deepen market liquidity and also invite more issuers,” said Agrawal from Jiraaf.

Issuers may also benefit from wider distribution and potentially stronger demand for corporate debt securities. Tokenization could create benefits on both sides of the market by helping issuers access more investors while making corporate bonds easier for retail investors to buy and hold.

“We are waiting for a formal consultation paper for better clarity on how the framework would work. Though the technology used in tokenization is not new, rules for issuers and distributors need to be seen,” he added.