Anushruti Singh
As India aims to achieve a $5 trillion economy, the role of retail investors becomes increasingly crucial. Despite their significant potential, retail investor participation in the capital debt market remains below 4 per cent. To unleash this potential, several measures are needed, as highlighted by industry experts.
Vineet Agrawal, co-founder of Jiraaf, emphasised the importance of a robust capital debt market in realising India’s economic ambitions. “A robust capital debt market is indispensable to realise India’s ambitious goal of achieving a $5 trillion economy, with retail investors playing a pivotal role in its realisation. Currently, their participation stands below 4 per cent, making it imperative to increase this figure fivefold over the next five years,” said Agrawal.
Key measures to boost retail investor participation
- Eliminating TDS on bond repayments:
Agrawal suggests that removing Tax Deducted at Source (TDS) on bond repayments could simplify the investment process. “Eliminating TDS at source on bond repayments would encourage investment by reducing procedural hurdles,” he noted. This move would streamline transactions and make debt investments more attractive. - Taxation benefits:
Providing tax incentives similar to those for equity investments could significantly boost retail participation. “Extending taxation benefits akin to equity investments—such as inclusion in the 80C deduction limit, tax-free interest income up to a specified threshold, and lower LTCG taxation rates—would incentivize greater participation,” Agrawal explained. These benefits would make debt investments more appealing to retail investors, encouraging them to diversify their portfolios. - Easier digital access to securities:
Facilitating easier digital access to corporate and government securities is essential for democratizing investment opportunities. “Facilitating easier digital access to corporate and government securities would democratize investment opportunities, attracting a broader base of retail investors,” Agrawal said. This would enable more people to participate in the market, contributing to overall economic growth. - Enhancing market liquidity:
Building a vibrant buy-and-sell market for debt instruments is critical for enhancing liquidity and investor confidence. “Fostering a vibrant buy-and-sell market to enhance liquidity will further bolster confidence and attractiveness in debt instruments,” Agrawal added. Increased liquidity would ensure that investors can easily enter and exit positions, making the market more dynamic.
Broader impact on the economy
Meeting these budget expectations can transform the debt market, making it a cornerstone of India’s economic strategy. Increased retail participation would not only diversify the investor base but also provide a steady stream of funds for infrastructure projects, corporate expansion, and government initiatives.
A more inclusive debt market would lead to a healthier financial ecosystem, with benefits cascading down to various sectors of the economy. It would also enhance financial literacy and investment culture among the general populace, driving long-term economic stability and growth.
As the Union Budget 2024-25 approaches, stakeholders eagerly anticipate measures that will unlock the potential of retail investors, paving the way for a more prosperous and inclusive economy.
