How can Prize Bonds become more competitive?

Imagine the feeling if you win Rs. 1,000,000,000 out of a Prize Bond, the feeling to earn large amounts with little initial investment and very less risk. Yes! That’s exactly the urge that drives most people to invest in Prize Bonds. This financial instrument has become increasingly popular amongst existing market investors and there is already a great demand for it. But how can the government stimulate more investors’ interest in Prize bonds. We provide a list of add-ons that can make Prize Bonds more appealing.

1. Introduce Prize bonds in another currency

Just like Eurobonds, that are issued by the domestic Government in a foreign currency, the Government can introduce Prize bonds as well in a foreign currency. This will ensure that the time value of money is factored in and the depreciation in the value of Prize bond is compensated for.

2.    Premium bonds at a reduced Price

Premium bonds are the exclusive bonds that provide its rightful owner an interest of 3% even if the owner does not win anything at the end of the day. This provides the owner with a reasonable assurance of profit. Such bonds should be issued by the government more often and in smaller values so that even middle-class can afford it.

3. Make most out of the Secondary market trading

Secondary Market refers to a market of dealers and agents as opposed to a primary market where bond issues are made directly by the state. Government should consider legalizing trade in the Secondary market as it brings several advantages.

The most important advantage is that the transaction cost for the Government is reduced to a great extent as the agents will accommodate and respond to all the worries with regards to the issue and payback of bonds. It will also attract more investors since many investors have reservations in buying bonds directly from the Government.

Also see, why do investors prefer to buy bonds from the secondary market.

4. Emphasize on Marketing of Prize Bonds

Even though there is a very high demand for Prize Bonds, there is still a big chunk of the economy which is untapped. One of the major reasons why potential investors do not invest is that they are not aware of these bonds. There is lack of awareness due to which the optimum level of demand for Prize bonds has not been attained.

Apart from the points highlighted above to increase the number of investors in the bond market, Government should take steps to promote bonds via seminars, advertisements and other promotional activities.