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Corporate bonds in India are facing a unique issue: the market has grown by more than three times, but trading still happens as if it is a niche market. If you have tried to sell a corporate bond before it matures, you have probably received a quote that was embarrassingly low, and that is exactly what SEBI is trying to fix.
SEBI’s new initiative, built around market makers, a deeper repo market, and a new retail distribution channel, is probably the most progressive of its kind and aims to transform the Indian corporate bond market from a “buy-and-hold” parking lot to a genuine functioning secondary market. Here’s what’s actually changing and what it means if you’re an investor sitting on bonds (or thinking about buying some).
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India’s ₹60 Lakh Crore Corporate Bond Market: Why Liquidity Is Still So Low
The data speaks for itself. SEBI has reported that the outstanding corporate bonds increased from around ₹17.5 trillion by the end of FY15 to over ₹60 trillion as of July 2026. This is without a doubt a significant market. However, the large size of the market has not translated into liquidity. Think about it this way: India has close to 33,000 corporate bonds floating around, issued by roughly 7,200 companies. On most days, though, fewer than 500 [1] of them actually change hands. Everything else is basically frozen in place. To put this in context, the bond market as a whole may not trade as much as a large-cap equity stock on a given day.
Institutional investors, namely insurers, pension funds, and mutual funds, are in the market to buy and hold until maturity. This is not an issue for them, but for the rest of the market, this creates an “illiquidity premium” that experienced bond investors account for, even if they do not label it as such.
SEBI’s Liquidity Window Facility: What Went Wrong
SEBI actually tried to solve this once before. In October 2024 [2], it introduced a “Liquidity Window” facility letting issuers offer put options so investors could sell bonds back on pre-specified dates. An interesting idea on paper, but more than a year later, the facility had been used barely at all, with issuers not taking advantage of it due to overly restrictive conditions, low incentives, and balance-sheet uncertainty. This serves as a good example to illustrate that introducing a circular does not always accomplish liquidity reforms; there needs to be adequate incentives for issuers, in addition to sufficient demand for the investments.
What’s New: Market Makers, Repo Depth, and Tokenization
This is where the current framework differs. Instead of relying on issuers to voluntarily offer exit windows, SEBI is now attacking the plumbing of the market itself.
| Reform | What it does | Status (as of Aug 2026) |
| Market-making framework | Designated intermediaries post continuous two-way (buy-sell) quotes, narrowing bid-ask spreads. | Proposed in the Union Budget 2026-27; SEBI formalizing rules |
| Corporate bond repo deepening | Let investors borrow against bonds instead of selling outright, improving cash-flow flexibility. | Currently under 1% of the overall repo market; ~₹6,000 crore traded daily |
| Bond tokenization pilot | Shared-ledger tech (with RBI) for faster settlement and automated coupon payouts | Pilot announced; joint work with RBI underway, not yet live |
| Total Return Swaps (TRS) | Let institutions gain bond exposure without owning the physical asset, adding trading volume. | Proposed in Union Budget 2026-27 |
| ISIN consolidation | Fewer, larger benchmark bond issuances instead of thousands of tiny, fragmented ones | Under examination by SEBI |
Consider how market-making functions in equities. There is a designated player who is required to quote buy and sell prices. As a result, there are no empty order books. Using this framework for bond trading would require market makers to quote both the buy and sell prices. This would result in tighter spreads and faster executions.
What This Means for Retail Investors
Retail participation has genuinely been rising, just from a small base. The number of RFQ (Request for Quote) trades rose from 2.76 lakh in FY25 to 17.84 lakh in FY26 [3], a rise of about 546%, primarily driven by greater retail participation in debt securities through Online Bond Platform Providers (OBPPs), according to SEBI. SEBI is now building on that momentum:
- A new distributor layer has been proposed. Fixed Income Channel Partners (FICPs), modelled on the mutual fund distributor system, aim to widen access in Tier-II, Tier-III, and rural areas, where bond awareness is still low. This is still at the proposal stage.
- SEBI subsequently lowered the minimum denomination for certain privately placed debt securities from ₹1 lakh to ₹10,000, making eligible bonds more accessible to smaller investors. The change took effect through a July 2024 circular [4].
- Tighter spreads equal less “hidden cost” for retail investors. If market makers minimize the buy-sell spread, retail investors lose less value from trading, saving money in the process, even if only a little.
- Faster exits also result in less ‘forced holding’. If you need cash mid-tenure, having a liquid repo market or an active market maker makes a difference, more so than any information found on a bond factsheet.
- Ultimately, the real test is adoption. The failure of The Liquidity Window proves that just having a rule in place does not mean it will change your trading experience overnight.
The Catch: Reform Announced ≠ Reform Delivered
Experienced investors have seen this movie before; RFQ platforms, ISIN rationalisation, and now market-making have all been announced over the years with mixed follow-through. The market-making framework is still being formalised; the tokenisation initiative is a pilot, not a live system. Treat 2026 as the year the infrastructure changes, not necessarily the year every corporate bond in your portfolio suddenly becomes as liquid as a blue-chip stock.
Corporate Bond Framework Frequently Asked Questions
SEBI has been making a series of changes to the corporate bond market aimed at improving transparency, liquidity, access, and ease of investing. Recent measures include changes affecting online bond platforms and proposed reforms for smaller private-placement debt issues.
Not necessarily. Regulatory reforms can improve disclosure, market infrastructure, and investor access, but they do not eliminate credit, liquidity, or interest-rate risk. Investors still need to assess the issuer and the individual bond.
A liquidity window allows eligible investors to sell the bonds back to the issuer on specified dates or intervals, subject to the issue’s terms. It is designed to address the traditional problem of limited secondary-market liquidity in corporate bonds.
No. The facility operates only according to the specified dates, conditions, and terms of the issue. Investors should not treat a liquidity window as equivalent to the instant liquidity available in a savings account.
No. The applicable requirements depend on the type of security, method of issuance, listing status, issuer, and relevant SEBI regulations. Investors should read the specific offer document and terms of the bond before investing.
Sources
- Business Standard — “SEBI to test bond tokenisation, eyes deeper corporate bond repo market”
- SEBI — Liquidity Window Circular
- SEBI — Consultation Paper on Introduction of Fixed Income Channel Partners (21 August 2026)
- SEBI — July 2024 Circular
Disclaimer
Fixed returns do not constitute guaranteed or assured returns. Investments in corporate debt securities and municipal debt securities/securitized debt instruments are subject to credit risks, market risks, and default risks, including delay and/or default in payment. Read all the offer-related documents carefully. This blog/article should not be construed as financial advice or as an offer or recommendation to buy or sell any security or any products/services of/on GoldenPi or any product/services of its third-party client(s). For a detailed calculation of YTM, visit our website. T&C’s Apply.
