BSE, NSE Caution Investors: Do Due Diligence Before Buying Bonds Online

India’s top stock exchanges, BSE and NSE, have jointly issued a strong advisory urging investors to exercise due diligence before investing in bonds through online platforms.

In a joint statement released on Friday, the exchanges warned market participants to carefully consider key factors such as the bond's credit rating, the issuer’s repayment track record, the liquidity of the instrument, settlement timelines, and potential tax implications.

With online bond platforms gaining popularity by offering easier access to fixed-income instruments, the exchanges highlighted the need for informed decision-making to avoid misjudged risks and capital losses.

Importantly, BSE and NSE emphasized verifying whether the platform is a SEBI-registered Online Bond Platform Provider (OBPP). Transactions through unregulated platforms could expose investors to significant risks, they cautioned.

“Lack of awareness or understanding of these aspects can result in misjudged risks and potential capital loss,” the exchanges said in their statement.

Investors were also advised to read disclaimers thoroughly, understand all terms and conditions, and ensure their transactions are conducted on properly regulated and secure systems.

The advisory further underscored the need to understand fundamental bond investment concepts such as yield to maturity (YTM), which represents the total annualized return if the bond is held until maturity. YTM calculations take into account the bond’s market price, coupon payments, and time remaining until maturity.

However, the exchanges warned that YTM is not a guaranteed return and can fluctuate based on market interest rates, liquidity conditions, and the creditworthiness of the issuer. Selling a bond before maturity may result in actual returns that differ significantly from the indicated YTM.

The statement also explained the inverse relationship between bond prices and yields: when market interest rates rise, bond prices fall (leading to higher yields), and when rates fall, bond prices increase (resulting in lower yields). Understanding this relationship is crucial for assessing interest rate risk and anticipating price movements in the secondary market.

As online bond investing continues to expand in India, BSE and NSE said the focus must remain on investor education, transparency, and careful assessment to ensure safer, more informed participation in the fixed-income market.

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