Below is the verbatim transcript of Rustagi's interview with CNBC-TV18.
Q: For the first time, India's top banks, insurance companies, pension funds, mutual funds and small investors will come together to trade in corporate bonds and government securities under a dedicated debt segment, which will be launched by the stock exchanges shortly. In theory, this will provide small investors a platform to buy corporate and government securities. But in practice, is it really advisable?
A: This is certainly one of the biggest steps that have been taken to deepen the debt market in India. We have seen in the past also a number of steps taken in this direction but they have not been successful. However, this time my feeling is that that because of the participation of the banks as well as the insurance companies, which are big players in both corporate debt as well as the government securities the liquidity will get a boost.
One of the major factors or objectives of introducing this segment is to activate the retail segment or allow retail investors to participate in the debt market in a very transparent manner. The retail participation today in the debt market is very low and investors often struggle to find out as to which security to buy and where to buy and also one of the factors, which has kept retail investor away from the debt market so far, has been the low liquidity.
Therefore, with this initiative the retail investor will be able to buy and sell publicly issued securities in a very simple manner as both the price as well as the security will be visible to them. The dedicated debt exchange will list out all the securities that are listed on it and also will provide a screen based trading for order matching as well as providing quotes. So, it is good news for all those individual investors who would like to participate in the debt market.
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However, my guess is that it is the high networth individual (HNI) segment, which will initiate the process. As far as retail investors are concerned, my advice to them would be to increase their awareness level before taking the plunge. The fact is that debt market is complicated, in fact can be more complicated than equity market and the fact that there is an inverse relationship between interest rates and the bond prices. Investing directly can be a little complicated, in fact quite complicated for retail investors. So, the right starting point for retail investor would be to look at debt funds because these are debt funds, which are diversified by nature and also give an opportunity to retail investors to buy into a portfolio, which has a mix of corporate debt as well as government securities and also the fact that they have to look at only one price that is net asset value (NAV) rather than looking at individual prices, number of bonds in the portfolio.
Once they become experienced, once they understand the nuisances of investing in the debt market, one will definitely see more retail participation in the dedicated debt segment. However, it is going to be a slow process, but of course in the interim they will definitely benefit by way of increased activation of the debt market through their investment in the debt funds.
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