Indian bonds offer one of the most attractive yields globally for investors seeking a good balance of risk and reward  | Photo Credit: Deepak Sethi

Online bond platforms, when first launched, were expected to spur retail participation in bond markets, replicating the equities experience. But they have managed just ₹1,500 crore in monthly volumes by end-2025. The Securities and Exchange Board of India (SEBI) is now looking at ease of doing business for online bond platforms. It has recently proposed two relaxations which aim at widening their menu. These are however unlikely to materially boost volumes.

SEBI seeks to allow online bond platforms to offer foreign debt securities through platforms regulated by the IFSCA (International Financial Services Authority). The rationale is that as online bond platforms are registered as stock brokers which deal in IFSCA-regulated products, this facility should be available to them too. Whether this will spark retail interest in foreign bonds is however questionable. Unlike stocks — where foreign markets are currently more attractive than India’s — Indian bonds offer one of the most attractive yields globally for investors seeking a good balance of risk and reward. Sovereign bond yields for advanced markets such as the US, UK, Australia and Germany hover at 4-5 per cent, while Indian gilts trade at 7 per cent. Should investors fish for higher yields, their options narrow to risky markets such as Russia, Brazil, Mexico and so on. Investors may seek out foreign bonds for currency diversification, but this requires taking directional calls on exchange rates.

Bonds seem safe, but can expose investors to capital losses if they get the direction of rates wrong. Given that retail investors in India struggle even to understand domestic rate cycles, expecting them to decipher global macros to take a call on foreign bonds and currencies seems a tall order. Three, investments by domestic investors in foreign securities are capped by LRS (Liberalised Remittance Scheme) limits. Currently, overseas equities and real estate are the rage with more affluent Indians for their high returns, leading to significant foreign exchange outflows. Whether investors would take to low-return debt instead, and whether this is even desirable from a policy perspective, is moot. SEBI is also proposing to allow online platforms to add Section 54EC bonds, which are free of long term capital gains tax, to their menu. This will allow investors to own 54EC bonds in a more convenient form and may add to business volumes for the bond platforms. However, 54EC bonds are issued only by a handful of government-backed entities.

Overall, if the intent is to promote retail participation in bond markets, it is important to address poor information flow on bond yields and adverse taxation of debt income. Today, while it is quite easy for individual investors to access transparent quotes and order books to trade stocks, bond market trades remain opaque. The taxation of interest from bonds at slab rates, has been the key trigger for Indian investors seeking out equities in search of better returns.

Published on May 10, 2026