SEBI Plans Incentives to Boost Retail Investment in Debt Securities

SEBI Proposes Incentives to Boost Retail Participation in Debt Securities

In a move aimed at reviving India’s underperforming bond market and attracting small investors, the Securities and Exchange Board of India (SEBI) has proposed allowing issuers of debt instruments to offer incentives such as higher coupon rates or discounts on issue price to select investor categories.

The proposal, released through a consultation paper on October 27, seeks to enable greater retail participation in public issues of non-convertible securities (NCS) — a category that includes non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS).

SEBI’s New Proposal Aims to Revitalize the Debt Market

Under the current regulations, issuers or intermediaries are barred from offering any form of incentives to investors in public issues. SEBI’s proposed amendment marks a major shift, allowing specific investor categories — including senior citizens, women, serving and retired defence personnel, widows of ex-servicemen, and retail subscribers — to receive preferential benefits such as a slightly higher coupon rate or a discount to the issue price.

These benefits, however, will apply only to initial allottees and will not extend to secondary market transfers or transmissions of such securities.

“It is proposed to permit issuers to offer incentives in the form of higher coupon rate or discount to the issue price to certain categories of allottees like senior citizens, women, armed forces personnel (serving, ex-servicemen, and widows of ex-servicemen) and retail subscribers,” SEBI said in its consultation paper.

“This aims to encourage retail participation in debt securities while providing a fillip to the number of public issuances in the debt market,” it added.

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Public Debt Issuances Drop Sharply in FY25

According to SEBI’s Annual Report 2024–25, India’s public issuance of non-convertible debentures witnessed a steep decline in the last fiscal year. The total value of public NCD issuances fell from ₹19,168 crore in FY2023–24 to ₹8,149 crore in FY2024–25, reflecting subdued investor appetite and limited issuer activity.

This fall contrasts with the growing interest in equity markets, underscoring the need for measures that make debt instruments more appealing to small investors. SEBI believes that targeted incentives could help revive investor confidence and bring back participation in the country’s fixed-income market.

Learning from Existing Practices Across Financial Sectors

SEBI noted that similar incentive models already exist in various segments of the economy. For example, banks and non-banking financial companies (NBFCs) commonly offer higher fixed deposit interest rates to senior citizens and women, while equity market mechanisms like Offer for Sale (OFS) allow promoters to provide discounts to retail shareholders.

Likewise, members of the armed forces often receive discounts from airlines, hotels, and travel companies as part of welfare initiatives.

By introducing comparable incentives in the debt market, SEBI aims to make bond investing more inclusive and competitive, while also rewarding retail investors for long-term participation.

Issuers to Have Discretion with Mandatory Disclosure

The proposed guidelines will grant issuers the discretion to decide whether to offer incentives, but any such offering must be disclosed clearly in the offer document.

This ensures transparency and investor awareness, preventing misuse or selective offering of benefits. SEBI has emphasized that the differential terms will apply strictly to the original allottee and cannot be transferred post-allotment.

The regulator also clarified that such differential offerings should be limited, proportionate, and structured to promote fairness among investor classes while maintaining issuer flexibility.

SEBI’s Twin Objectives: Retail Inclusion and Market Deepening

The proposed reform is consistent with SEBI’s broader goal of deepening India’s debt market, which remains underdeveloped compared to the equity market. Despite India’s robust economic growth and expanding corporate credit demand, the participation of retail investors in corporate bonds remains minimal — primarily due to low awareness, limited liquidity, and lack of perceived returns.

SEBI’s initiative addresses two major challenges:

1. Encouraging retail participation by making debt products more attractive through tangible incentives.

2. Stimulating more public issuances, as higher investor demand could encourage companies to raise capital through bonds rather than relying solely on bank loans.

“Offering incentives will enhance the competitiveness of debt securities for investors, thereby increasing participation while achieving SEBI’s dual objective — to raise retail involvement and boost the number of public issuances in the debt market,” the paper stated.

Industry Experts Welcome the Move

Market experts have largely welcomed SEBI’s proposal, calling it a pragmatic step toward diversifying retail investment avenues.

Analysts believe that the introduction of incentive-based participation could help democratize bond markets in India, where institutional investors — particularly mutual funds and insurance firms — currently dominate.

However, experts also emphasized the need for strong investor education campaigns to ensure that retail participants understand the risks associated with debt instruments.

“While the move is positive, it should be coupled with efforts to improve market liquidity, ensure standardized disclosures, and strengthen credit awareness among small investors,” said a senior fund manager at a leading investment firm.

Conclusion: A Step Toward Building a Retail-Driven Bond Market

SEBI’s proposal to allow targeted incentives in debt securities marks a progressive step in democratizing India’s capital markets. By rewarding small investors such as senior citizens, women, and armed forces personnel, the regulator aims to broaden access to safer investment options while stimulating public bond issuances.

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