Where To Buy Covered Bonds in India?
The financial market space consists of innumerable investment avenues that could accompany your capital requirements. Starting from equity to debt, you can raise funds from the public by issuing securities. Here we’ll talk about one specific hybrid debt instrument, i.e., covered bonds in India. Investing in these types of avenues boosts the profile and portfolio of the investors. Along with that, it also improves your cash balances, giving you the required financial aid when you need it. We’ll walk you through the concept and functionality of this bond in detail.
What is a Covered Bond? Covered bonds are hybrid debt instruments issued by banks and NBFCs. These bonds are backed by a heap of collateral assets collected by the entity. These instruments are in between asset-backed securities, mortgage-backed securities, and corporate bonds. The borrower pays principal and interest to the bondholder after the bond expires.
Upon failing to pay the debt, the money gets extracted from the collateral assets of the company. Though the attributes of covered bonds sound like corporate bonds, here we have dual recourses. While the first recourse is made available to the lender as opposed to the bond issuer, the second recourse is bankruptcy-protected. The latter option allows lenders the leeway and the authority to ingress their assets at the time of a fiasco. When the assets reduce from the collateral pool, companies refill them with new ones to pay back the default bondholders. It is one of the reasons why the credit rating for covered bonds is above the issuer. The major investors of covered bonds in India are asset managers, central banks, pension funds, insurance companies, bank treasuries, etc.
List of Platforms To Buy Covered Bonds in India There are small and big investors incovered bonds. You can buy these bonds at multiple places, i.e., offline or online. Now, let’s look at the platforms where you can buy covered bonds in India.
Online Platforms: Nowadays, most people spend their time on smartphones, laptops, and other digital devices. So, all the markets stepped online to make investments simple and easy for the end investors. If you want to buy covered bonds in India, there are decent digital bond trading platforms online. It saves you a lot of paperwork and documentation. With the rise in the online market, a single tap can do wonders for your portfolio diversification. So, want to invest in covered bonds? Check out this online bond platform here.
Stock Exchanges: The other path to buy covered bonds is going through the stock exchange in the secondary market. Investors need a demat account to participate in buying these bonds in the stock exchange. This removes any contrarieties in the trade and creates transparency between the trader and issuer. Banking Institutions: Banks are prime issuers of covered bonds in India. They use the asset-back securities of pooled loans to refinance their other capital needs. Hence, the issue covered bonds to investors by putting the collateral assets collected on those loans as a backup plan. In case of any unforeseen event, the defaulters will get their money back by pulling it from these assets.
ICRA, one of the leading credit rating agencies in India, reported that there has been a spike in covered bonds issues. The stats show that the instrument issues rose from Rs. 400 crore in 2019 by 5.5 times to reach Rs. 2,200 crore in 2020. Check also- Tax free bonds for Senior Citizens and what are tax saving bonds
Conclusion Covered bonds are good for growing your investments than regular bonds. This instrument offers extra protection to your investment. If the company falls short, the investor has a contingency to get his/her principal back. You can buy covered bonds in India at banking institutions, NBFCs, stock exchanges, and online bond platforms.