Sebi Proposes Expanding Online Bond Platforms to Include Global and Tax-Saving Investments

India's Securities and Exchange Board (Sebi) is proposing to significantly expand the services offered by Online Bond Platform Providers (OBPPs). The aim is to connect India's growing bond market with international finance and boost retail access to specific tax-saving investments. These changes would allow OBPPs to offer products regulated by the International Financial Services Centres Authority (IFSCA) and clarify the process for investing in Section 54EC bonds.

Integrating Global and Domestic Markets

Sebi's proposal to allow OBPPs to offer products regulated by the IFSCA, especially through GIFT City, signals a move to align India's debt market with global practices. This idea, driven by IFSCA, aims to use GIFT City's role as an international financial center. Until now, OBPPs could only offer products regulated by domestic bodies like Sebi, RBI, and others, separating domestic and international debt access. The new rules would let Indian investors buy global debt instruments, like overseas-listed bonds, directly through Indian platforms. This must still follow rules like the Foreign Exchange Management Act (FEMA) and the Liberalised Remittance Scheme (LRS). This approach is similar to existing platforms that allow Indian residents to invest abroad within LRS limits of up to $250,000. The change could improve investment diversification and boost India's international financial standing.

Boosting Tax-Saving Bond Access

Sebi also wants to improve clarity and access for Section 54EC bonds on OBPPs. These bonds are government-approved and issued by companies like Power Finance Corporation (PFC), Indian Railways Finance Corporation (IRFC), REC, and National Highway Authority of India (NHAI). They are used to defer long-term capital gains tax from selling property. The proposals require OBPPs to clearly show key details, such as who can issue them, their typical five-year lock-in period, annual investment limits (up to ₹50 lakh), and tax benefits. Importantly, OBPPs must include a clear disclaimer stating that any issues or complaints regarding these tax-saving bonds must be sent to the issuer, not Sebi. This aims to make a popular tax-saving option more understandable and accessible. Unlike tax-free bonds, which offer tax-exempt interest, these bonds exempt capital gains tax.

Streamlining Compliance Rules

Alongside product expansion, Sebi is proposing to update compliance officer rules for OBPPs. The plan is to align these requirements with those for stockbrokers under the SEBI (Stock Brokers) Regulations, 2026. This change, based on industry feedback, moves away from needing a mandatory Company Secretary. Instead, it focuses on a wider set of duties, including following Sebi laws, managing investor complaints, and reporting non-compliance. This update is part of Sebi's broader effort to simplify its rules for market participants and improve efficiency and investor protection. These changes come as India's bond market shows strong growth, with secondary corporate bond volumes increasing significantly in the last fiscal year, and OBPPs helping more retail investors participate.

Potential Investor Concerns

While Sebi's proposals aim to simplify business operations and increase investment choices, some concerns about complexity and investor safety need attention. Requiring OBPPs to offer IFSCA-regulated products means including investments under a different regulatory system. Even with FEMA and LRS compliance, the complex nature of global debt markets might be difficult for retail investors to fully understand. The disclaimer for Section 54EC bonds, which directs complaint resolution to issuers, could create a gap in Sebi's direct oversight for these specific tax-saving products. This places more responsibility on investors to understand the products and how to seek help, which could be challenging for less experienced individuals. Also, while standardizing compliance officer roles with stockbroker rules offers a uniform approach, the wide variety of products (global bonds, tax bonds) on OBPPs might need different oversight than general compliance allows. This layered regulation, while efficient, could unintentionally weaken investor protection across different product types found on the same platform.

What Happens Next

These proposed changes show Sebi's ongoing effort to develop India's debt market and connect it with global finance. Offering a wider range of products through OBPPs is expected to encourage more retail investors and increase market activity. With public comments closing on May 26, the final rules will define how OBPPs operate and what diverse, though potentially complex, fixed-income options they can provide to Indian investors.