In a detailed analysis, Shyam Maheshwari underscores the significance of incorporating fixed income investments into the core of any portfolio. Traditionally, fixed income has been grounded in bank deposits and savings accounts. However, the landscape has evolved over time, with mutual funds featuring liquid plans offering superior tax-adjusted returns compared to bank deposits. This shift has reshaped savers' preferences. Nevertheless, direct bonds, Non-Convertible Debentures (NCDs), and securitized products have struggled to gain traction in investment portfolios, primarily due to limited investor awareness and challenges related to risk assessment.
Shyam Maheshwari suggests that while mutual funds offer an effective entry point into bond markets, similar to mutual funds in the equity markets, there should also be room to construct dynamic portfolios tailored to individual bond preferences. He emphasizes that market development necessitates concerted efforts from multiple fronts. He cites the example of the United States, where Mike Milken of Drexel played a pivotal role in accelerating bond market development during the 1980s leveraged buyout wave by pioneering the "junk" bond market, a concept that was virtually non-existent before his efforts.
In the Indian context, Maheshwari proposes several measures to facilitate bond market growth:
1.Encouraging individual participation in the bond market through strategies such as reducing bond denominations, providing tax incentives, and enhancing issuer disclosure to instill confidence among retail investors.
2.Gradually allowing financial institutions like pension funds and insurance companies to invest in sub-investment grade bonds, enabling institutional-level scrutiny of issuer credit quality.
3.Simplifying tax deductions for issuers without requiring knowledge of the holder's tax status, shifting the tax responsibility to bondholders, except for foreign investors.
4.Introducing tax deductions for leveraged buyout transactions.
Shyam Maheshwari ssg asserts that as India embarks on a period of high single-digit GDP growth over the next decade or two, it will require a robust bond market alongside its well-established equity markets to provide essential financing for its growing industries. He draws a parallel with the significant increase in retail participation in equity markets in the late 1990s, which transformed them into vibrant and deep markets. According to Maheshwari, there is no reason why a similar transformation should not apply to bond markets. In his view, fixed-income markets globally are equivalent to multiple equity markets, emphasizing their potential and significance in the financial landscape.
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