Your Questions Answered: How can I invest in corporate bonds using the RFQ platform?

In 2020, SEBI introduced the Request for Quote (RFQ) platform, offering investors a transparent and efficient method for trading corporate bonds by enabling them to solicit quotes from various dealers and select the most favorable one.

First Published20 Oct 2023, 10:57 AM IST
Sebi introduced the RFQ platform in 2020
Sebi introduced the RFQ platform in 2020

Q. I am a 65-year-old retired government professor. I have been investing in mutual funds and NPS pre-retirement. After retirement, I have completely stopped investing in mutual funds. Currently, all of my retirement corpus is invested in fixed deposits and in special savings accounts for retired personnel. I wish to now diversify my investment into corporate bonds too. However, my knowledge of corporate bonds is limited. Recently, I read that small investors can invest in corporate bonds through SEBI’s RFQ platform. Can you please elaborate on what are the risks and advantages of investing in corporate bonds and separately also elaborate on what SEBI’s RFQ platform is? 

Vidyanathan K. T, Salem, Tamil Nadu

The Securities and Exchange Board of India (SEBI) launched the Request for Quote (RFQ) platform in 2020 to provide a transparent and efficient way for investors to trade in corporate bonds. The RFQ platform allows investors to request quotes from multiple dealers for a particular bond, and then choose the best offer.

Benefits of investing in corporate bonds in India

Regular income: Corporate bonds typically pay a fixed interest rate at regular intervals, such as semi-annually or annually. This can provide investors with a steady stream of income.

Diversification: Corporate bonds can help to diversify an investment portfolio. This can help to reduce risk and improve overall returns.

Potential for capital appreciation: The price of corporate bonds can fluctuate over time, just like the stock market. However, if an investor holds a bond until maturity, they will receive the full face value of the bond, plus any accrued interest. This can lead to capital appreciation, especially if the company's credit rating improves over time.

Liquidity: Corporate bonds are generally more liquid than other fixed-income investments, such as government bonds or certificates of deposit. This means that investors can typically sell their bonds quickly and easily if they need to.

Cons of investing in corporate bonds in India

Credit risk: Corporate bonds are subject to credit risk, which is the risk that the issuer of the bond will default on their debt. This risk can be mitigated by investing in bonds issued by companies with high credit ratings.

Interest rate risk: The price of corporate bonds can be affected by changes in interest rates. If interest rates rise, the price of existing bonds will typically fall. This is because investors can buy new bonds with higher interest rates, making existing bonds less attractive.

Volatility: The price of corporate bonds can fluctuate over time, just like the stock market. This means that investors could lose money if they sell their bonds when the price is low.

Overall, corporate bonds can be a good investment for investors who are looking for regular income, diversification, and the potential for capital appreciation. However, it is important to understand the risks involved before investing in corporate bonds.

Investment checklist

Do your research: It is important to research the company before investing in its bonds. Consider the company's financial strength, credit rating, and industry outlook.

Invest for the long term: Corporate bonds are typically best suited for long-term investors. This is because the price of bonds can fluctuate in the short term, but over the long term, bond prices tend to track their underlying interest rates. Build a diversified portfolio: Don't put all your eggs in one basket. Diversify your portfolio by investing in a variety of corporate bonds, as well as other asset classes, such as stocks and real estate.

How to invest in corporate bonds using the RFQ platform?

To invest in corporate bonds using the RFQ platform, investors need to open a trading account with a broker that offers access to the platform. Once they have opened an account, they can log in and start trading.

To trade in corporate bonds, investors need to place an RFQ for the desired bond. The RFQ should specify the quantity of bonds that the investor is interested in buying, as well as the price that they are willing to pay. Once the RFQ has been placed, multiple dealers will provide quotes to the investor. The investor can then compare the quotes and choose the best offer.

Benefits of investing in corporate bonds using the RFQ platform

There are several benefits to investing in corporate bonds through the RFQ platform, including:

Better transparency: The RFQ platform provides investors with real-time quotes from multiple dealers, which allows them to compare prices and choose the best offer. This also helps to ensure that investors are getting a fair price for their bonds.

Reduced transaction costs: The RFQ platform charges a low brokerage fee, which makes it a cost-effective way to trade in corporate bonds.

Convenience: Investors can access the RFQ platform through their online trading account. This makes it easy to trade in corporate bonds without having to go through a broker.

In conclusion, SEBI's RFQ platform has made it easier for small investors to invest in corporate bonds. The platform offers a number of benefits, including a lower investment threshold, better transparency, reduced transaction costs, and convenience. Small investors who are interested in investing in corporate bonds should consider using the RFQ platform. It is a safe and efficient way to trade in corporate bonds and get the best possible price.

Kuvera is a free direct mutual fund investing platform.

Note: This is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.



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First Published:20 Oct 2023, 10:57 AM IST
HomeMoneyPersonal FinanceYour Questions Answered: How can I invest in corporate bonds using the RFQ platform?

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