Transferring & Selling Indian Bonds: A Comprehensive Guide for Retail Investors

Indian Bonds are a valuable component of any domestic investment portfolio, offering stability and predictable returns. Whether transferring bonds to family members, gifting them, managing them in a will, or selling them through different platforms, it's essential to understand the processes involved. This guide will provide an in-depth look at how to transfer or sell bonds, whether you have a will or not, and explore various selling mechanisms, including Request for Quote (RFQ) via Online Bond Platform for Private Placement (OBPP).

Transferring Bonds to any entity

Transferring bonds to family or friends can be a thoughtful gesture, whether as part of estate planning or simply to share wealth. Here’s how you can do it:

1. Gifting Bonds:

• Physical Bonds: Physical bonds certificates are not very popular after the arrival of dematerialized (Demat) accounts, despite this if you have Indian government bonds in certificate format you can transfer it. G-Secs (Government Securities) can be held as stock certificates, which are registered in the books of the Public Debt Office (PDO). Ownership cannot be transferred by endorsement and delivery alone. Instead, a transfer form must be executed, and the transfer details recorded in the PDO's books. The transfer is only final and valid once registered in the PDO's books.
• Demat Bonds: Any bonds held in a Demat account, can be transferred. One must submit a Delivery Instruction Slip (DIS) to their Depository Participant (DP) with details of the recipient’s Demat account. Ensure the recipient has a Demat account with a registered DP.

2. Transferring After Death:

• With a Will: The executor of your will needs to apply for probate to validate the will. Once probate is granted, the executor submits the necessary documents (probate, death certificate, bond certificates, or Demat details) to the bond issuer or transfer agent, who then transfers the bonds to the beneficiaries as per the will.
• Without a Will: The process follows the laws of intestate succession. Heirs need to obtain a legal heir certificate from the local authority or court, submit it along with the death certificate and bond certificates or Demat details to the bond issuer or transfer agent, who will then transfer the bonds to the legal heirs.

Selling Bonds

Selling bonds can be done through various platforms and methods, depending on your preference and the type of bonds.

1. Request for Quote (RFQ): This method involves obtaining price quotes from multiple potential buyers through broking houses or the Online Bond Platform for Private Placement (OBPP) such as BondsIndia. The OBPP or broking house advisor will help you secure the best possible price for your bond. By leveraging the expertise of broking houses or the efficiency of OBPP, sellers can reach a wider audience and benefit from the most favourable market conditions. This approach ensures that the bond selling process is both efficient and profitable.

1. Screen Trading: Screen trading in bonds is the electronic buying and selling of bonds through online platforms/exchange. It offers real-time price quotes and quick order execution, making trading more transparent, liquid, and accessible. This allows retail investors to easily trade bonds, making the market more inclusive and available to everyone. Sale of bonds through this channel is possible subject to availability of buyers for that specific bond.

2. RBI's retail direct app: Retail investors can now buy and sell government securities using the RBI Retail Direct app on their smartphones. Launched in November 2021, the RBI Retail Direct portal allows retail investors to open Retail Direct Gilt accounts under the Retail Direct Scheme. This scheme enables investors to participate in primary auctions and trade G-Secs in the secondary market, providing a convenient and accessible way for individuals to invest in government securities.

Important Considerations

1. Tax Implications:

• Capital Gains Tax: The seller of the bond will be subjected to capital gains tax on the bonds, when he sells the bonds for a profit (difference in buying and selling price) depending on holding period and the type of bond (listed/unlisted bonds).
• Bonds gifted above Rs. 50,000: If the fair value of gifted bonds exceeds Rs. 50,000, the recipient must report it as "income from other sources." However, there are many exemptions to this rule, such as gifts from family members, relatives, or bonds received through inheritance.

2. Nomination:

Registering a nominee for your bonds simplifies the transfer process upon your death. The nominee can directly claim the bonds, bypassing the need for probate or legal heir certification.

3. Documentation:

Ensure all necessary documents, such as transfer forms, identity proofs, and bond certificates, are correctly filled and submitted to avoid delays in the transfer process.

Conclusion

Transferring bonds, whether as a gift, inheritance, or sale, requires careful planning and understanding of the associated processes and legal requirements. By familiarizing yourself with the different methods of transfer and sale, such as RFQ, screen trade, and RBI's retail direct app of G-Secs, you can make informed decisions that align with your financial goals. Proper documentation and consideration of tax implications will ensure a smooth and efficient transfer, providing peace of mind and financial security for you and your loved ones.