The scars from Yes Bank AT1 Bonds write-off are still fresh in the minds of investors. AT1 Bonds are inherently risky (often riskier than Equities), yet they are sold like safe investments to gullible investors. AT1 Bonds give higher returns than Fixed Deposits and that is what lures investors into the game. With FD rates having declined rapidly over last 6 months, the attraction of higher interest rates is even bigger. Some of these bonds have YTMs of 11% to 12%. These could be from Private or Public Sector Banks.

Recent reports suggested that these types of bonds are being blatantly mis-sold to  retail investors without highlighting the involved risks. Now that SEBI has disallowed retail investors from participating in AT1 bonds issues, it has safeguarded the vulnerable segment. Nevertheless, the retail investors may be holding AT1 bonds indirectly via Mutual Funds & Insurance policies. The message from SEBI is loud & clear. AT1 Bonds are risky. In future, if there is any bank that is under stress, irrespective of it being PSU or Private, the process of writing off AT1 bonds will be smoother as the obligation to protect retail investors will not arise.

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