OBPPs pitch investor protection fund for retail bond investors

Online Bond Platform Providers (OBPPs) have pitched the creation of an investor protection mechanism for retail bond investors, saying it would be a fund- or insurance-like structure to help build confidence and encourage wider participation in the corporate bond market.

Industry participants suggested small investors could be protected up to a specified limit, and there was also a proposal for a mechanism similar to deposit insurance for bank deposits.

"A concept similar to the DICGC insurance on the bonds front could also be immensely helpful," said Harish Reddy, co-founder at Stable Money during a panel discussion at Global Fintech Fest 2026 here.


Industry participants discussed the possibility of a universal premium being charged across bond issuers, potentially linked to their credit risk.

One participant said that given the relatively low default rates and the secured nature of several bonds offered to retail investors, the premium could potentially be as low as 0.20-0.3 per cent.

Such a mechanism could help investors diversify their holdings while also potentially reducing the cost of capital for issuers, Reddy said.

The mechanism would work better if it was applied universally rather than being optional for issuers, as voluntary participation could result in adverse selection, some stakeholders said.

The need for such a mechanism was also highlighted by an instance cited by Nikhil Aggarwal, founder and group CEO of Grip Invest, where an NBFC defaulted on bonds totalling around Rs 150 crore after a rating downgrade and liquidity stress.

Thousands of retail investors were affected, but the company repaid the entire principal, interest and penalty interest within four months as its underlying loan assets continued to perform.

The discussions come at a time when regulators are seeking to deepen retail participation in corporate bonds.

The Securities and Exchange Board of India (Sebi) has been working on measures to improve retail access, risk disclosure and the functioning of OBPPs. The regulator has also proposed a colour-coded Credit Risk-o-Meter to help investors better understand the credit risk associated with debt securities.

The panel further discussed the need for OBPPs to act as gatekeepers by ensuring that retail investors understand the risk associated with bonds rather than simply chasing higher yields.

On liquidity, participants said a growing retail investor base could improve secondary-market activity as investors have different investment horizons and liquidity requirements. Institutional buyers could also provide an additional source of demand by buying bonds from retail investors seeking an exit.

"Fundamentally, a large number of retail investors will solve for liquidity," said Ajinkya Kulkarni, co-founder at Wint Wealth.

However, participants flagged a potential liquidity challenge when an issuer comes under stress or its rating is downgraded, as platforms may not have the ability or willingness to hold such bonds on their books.

The panel also discussed the proposed riskometer, which would use colour coding to make it easier for retail investors to understand the risk associated with different credit ratings and assess the trade-off between yield and risk.