• Debt market is a market meant for buying or selling of debt securities also called as bonds or fixed income securities.
• The debt market in India consists of mainly two categories the government securities or the G-Sec markets comprising central government and state government securities, and the
corporate bond market.
• In order to finance its fiscal deficit, the government floats fixed income instruments and borrows money by issuing G-Secs that are sovereign securities issued by the Reserve Bank of
India (RBI) on behalf of the Government of India.
• A bond is simply a loan with a definitive instrument features taken (issued) by an entity from the lender. Here, the entities taking a loan could be governments (central, state or
municipal bodies) or companies (PSUs, private corporates, financial institutions etc) and are called as Issuers.
• The corporate bond market (also known as the non-Gsec market) consists of financial institutions (FI) bonds, public sector units (PSU) bonds, and corporate bonds/debentures.
• The lender could be individuals, corporates, mutual funds, banks or anybody who invests in order to receive periodic income and are called as Investors.
• Corporate bonds are debt securities issued by private and public corporations.
• Bond is simply a loan between the issuer (borrower) and the bondholder (lender). When you purchase a bond, you are lending money to any entity known as issuer. In return, you
receive a bond and issuer pays fixed interest on the amount of money you lend.
Total amount invested by the bondholder in a bond issue is the principal amount. For example you invest Rs 10,000 and you get total 10 bonds with face value worth of Rs 1000 each.
Term to maturity of a bond changes every day from the date of issue of the bond until its maturity. The issuer has to repay the principal amount on the maturity date
Total amount invested by the bondholder in a bond issue is the principal amount. For example you invest Rs 10,000 and you get total 10 bonds with face value worth of Rs 1000 each.
The coupon is the interest rate that the issuer pays to the security holder. It refers to the periodic interest payments that are made by the issuer of the bond to the bond holder and are expressed as a percentage of the face value. For example, just like your Bank FD payments.
These bonds have no maturity. The investor gets a fixed interest every year. The issuer generally has a call option to redeem the Bonds after 5-10 years. Issued by Banks and NBFC to meet the capital adequacy requirements.
Have a fixed maturity period of 5-10 years after which the bonds are redeemed to the Investor. Has a coupon or interest rate fixed until maturity of a bond. Issued by PSUs, Banks, NBFCs, Corporates.
These bonds are issued normally by Public Financial Institutions such as REC, NHAI, HUDCO, IIFCL and the annual interest received from these Bonds in tax-free in hands of Investor.
54EC bonds, or capital gains bonds, are one of the best way to save long-term capital gain tax. A long-term capital gain is any revenue that you get from the sale of an asset. The asset could be land, property or even investments. According to the Income Tax Act, you are liable to pay tax for such gains. However you can reduce the liability of these taxes. Invest in section 54EC bonds, also commonly known as capital gain bonds, to avail tax deductions in the future. The bonds are issued as per the provisions of the section 54EC of the IT Act & bonds are AAA rated.
Read More The Government of India introduced the Sovereign Gold Bond (SGB) Scheme in November 2015, to offer investors an alternative to physical gold. It’s government securities issued by Reserve Bank
of India on behalf of the Government of India. They are denominated in grams of gold and pay a fixed interest of 2.5% p.a to their investors Moreover, it is over and above the gold price return. The interest payments are made every six months.
The tenure of these bonds is eight years. Investors can redeem these bonds for cash upon maturity of the bonds or can sell it on Exchange at current prices However, one can exit the scheme after a lock-in of 5 years. Also, one can always sell
the bonds on the secondary market
Read More
Company Fixed Deposit (corporate FD) is a term deposit which is held over fixed period at fixed rates of interest. Company Fixed Deposits are offered by Financial and Non-Banking
financial companies (NBFCs) & non-banking finance companies are governed by Companies Act 58A. The maturities of various company fixed deposits can range from a few months to a few years. Corporate fixed deposits fare better than
Bank FDs as they offer a significantly higher interest rate.
Read More
☛ Bonds offer a predictable stream of payments by way of interest and repayment of principal at the maturity of the instrument.
☛ Debt securities enable wide-based and efficient portfolio diversification and thus assist in portfolio risk-mitigation.
☛ The investors benefit by investing in fixed income securities as they preserve and increase their invested capital and also ensure the receipt of regular interest income.
☛ Most bonds carry a fixed charge on the assets of the entity and generally enjoy a reasonable degree of safety by way of the security of the fixed and/or movable assets of the company.
☛ The investors can even neutralize the default risk on their investments by investing in Govt. securities, which are normally referred to as risk-free investments due to the sovereign
guarantee on these instruments.
Raising money through bond issuances, to fund budgetary deficits and other short and long term funding requirements.
FIIs can invest in Government Securities upto US $ 5 billion and in Corporate Debt upto US $ 15 billion.
Consist of municipalities and local bodies, which issue securities in the debt markets to fund their developmental projects, as well as to finance their budgetary deficits.
Market intermediaries appointed by RBI to underwrite and make market in government securities have access to the call markets and repo markets for funds.
Large issuers of debt securities, for raising funds to meet the long term and working capital needs. These corporations are also investors in bonds issued in the debt markets.
Access debt markets with bonds for funding their financing requirements and working capital needs. They also invest in bonds issued by other entities in the debt markets.
Issue short and long term paper to meet the financial requirements of the corporate sector. They are also investors in debt securities issued in the debt market.
Large investors in the bond markets prudential regulations governing the deployment of the funds they mobilize, mandate investments pre-dominantly in treasury and PSU bonds.
Large investors in the debt markets they are, however, governed by their rules and byelaws with respect to the kind of bonds they can buy and the manner in which they can trade on their debt portfolios.
An investment banker to the government raises funds for the government through bond and t-bill issues participates in the market through open-market operations.
Emerged as another important player in the debt markets owing primarily to the growing number of bond funds that have mobilized significant amounts from the investors. Most mutual funds also have specialised bond funds such as gilt funds and liquid.
Largest investors in the debt markets, particularly the treasury bond and bill markets. Have a statutory requirement to hold a certain percentage of their deposits (mandatory requirement is 25% of deposits) in approved securities (all government bonds qualify) to satisfy the statutory liquidity requirements. Large participants in the call money and overnight markets. Arrangers of commercial paper issues of corporates. Active in the inter-bank term markets and repo markets for their short term funding requirements. Issue CDs and bonds in the debt markets.
| Market Segment | Issuer | Maturity | Instruments |
|---|---|---|---|
| Government Securities | Central Government | 2-30 Years (Central Govt. Dated Securities), 91 – 364 Days (T Bills), 5 – 13 Years (State Govt. Dated Securities) | Zero Coupon Bonds, Coupon Bearing Bonds, Treasury Bills, STRIPS |
| State Governments | Coupon Bearing Bonds. | ||
| Public Sector Bonds | Government Agencies / Statutory Bodies | 5 – 10 Years | Govt. Guaranteed Bonds, Debentures |
| Public Sector Units | 5 – 10 Years | PSU Bonds, Debentures, Commercial Paper | |
| Private Sector Bonds | Corporates | 15 Days to 1 Year (CP) & (CD), 1 – 10 Years (CD) & Bank Bonds. 1 – 7 Years (Municipal Bonds) | Debentures, Bonds, Commercial Paper, Floating Rate Bonds, Zero Coupon Bonds, Inter-Corporate Deposits |
| Banks | Certificates of Deposits, Debentures, Bonds | ||
| Financial Institutions | Certificates of Deposits, Bonds |
A Rating is the assessment of a borrowers credit quality. Rating performs the function of credit risk evaluation reflecting the borrowers ability to repay the debt as per the terms of the issue. Rating is not a recommendation to buy, hold or sell. It is a well informed opinion made to the public and might influence their investments decisions. Credit rating saves the investors time and enables him to take quick decisions and provides them beer choice amongst available investment opportunities. The agency that perform the rating of the debt is known as the credit rating agency.
CRISIL: Credit Rating Information Services of India Limited ICRA: Investment Information and credit rating agency of India Ltd CARE: Credit analysis and research Lt India Ratings and Research Brickwork Ratings India Private Ltd.
AAA: Highest Safety AA: High Safety A: Adequate Safety
A1: Highest Safety A2: High Safety A3: Adequate Safety
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