DEBT Market –
Mrs Srilakshmi Ramu
FINANCIAL MARKETS
MEANING OF BOND
 Bond is a negotiable certificate
 It is a long term security issued by an organization
 It is an acknowledgment of indebtedness.
 The issuer promises to repay the loan amount on a
specified maturity date.
FEATURES OF A BOND
 Par value-100,500,1000 generally
 Tax free –should have a Demat a/c
 Interest rate/Coupon Rate-fixed
 Maturity period
 Specific Tenure
 Redemption value or maturity value
 Can be issued at par value or discount or premium .
 Safety
 NCDs are rated by credit rating agencies.
 Liquidity
 Listed NCDs can be traded on stock exchange.
 Advantage cheapest source of financing and
of leverage
benefit
FEATURES –
 Fixed Return
 Risk free return
 Rate of interest..Coupon rate/Interest rate
 Issue price –face(par) value ,discount
value/premium
 Maturity period -1 day to 30 years ..1 year-money
market
There are two categories of bonds- those
 Maturity value
issued by government( always secured)
and those issued by companies (also
known as debentures).
It is normally unsecured or secured/
convertible or non convertible
BOND RISK
 Default risk/Credit Risk
 Interest rate risk
 Liquidity Risk
 Callability Risk
 Yield –interest /MP
 10% 100
=
 10/110=0.09—9%
 10/90=0.11-11%
Types of DEBT
INSTRUMENTS
1. GOVERNMENT BONDS-2006
1. Are government securities also known as (G-Sec)
 Long term investment tools issued for periods ranging
from 1 to 30 years
 Issued by both Central and State governments of
India/
 Public sector corporations and FI –IDBI,IFCI ,SFC
 Zero default riks
 Dated Govt securities
 Marketable
 100 or 1000
 1 year –CD,CP,Treasury Bills MM
 Instruments

HAVE TO MAINTAIN SGL ACCOUNT WITH
RBI
 GSEC is an OTC market –one to one no brokers
 Issued through PDO
 No prospectus required
 Interest on G sec exemepted 80L
 Payable on half yearly basis
 Institutional investors are main participants
 Bidding at Rs 10000 and in multiples of Rs 10000
2. CORPORATE BONDS –UPTO 15 YEARS
 Carry higher Risks
 Higher Returns
 3. Debentures
 4. Zero Coupon Bonds
 5. Deep Discount Bonds
 6 . PSU Bonds –Tax free Income
ZERO-COUPON BONDS
 As the name suggests, Zero-Coupon Bonds do not
earn any interest. Earnings from Zero-Coupon
Bonds arise from the difference in issuance price
(at a discount) and redemption value (at par).
This type of bonds are not issued through auction
but rather created from existing securities.
DEEP DISCOUNT BONDS
 Market price of 20% below its face value
 Riskier
 Long term
 Higher return
 IDBI 2700 of one 1 lakh –payable
years
after 25
GOLD BOND ADVANTAGES OVER PHYSICAL
GOLD
A sovereign gold bond is a better investment than
physical gold because of many reasons.
 Firstly, these gold bonds allow you to get a lower price
than physical gold when applied online.
 Secondly, you get a fixed interest rate on these gold
bonds.
 Thirdly, gold bonds have no holding or storage cost.
 Fourth, these bonds carry a sovereign guarantee since
they are issued by the government.
 Fifth, another benefit of sovereign gold bond scheme
is that there is no capital gains tax at maturity or
redemption for individual investors.
 Lastly, a sovereign gold bond is highly liquid.
TYPES OF BONDS
Fixed-rate bonds
 Government bonds of this nature come with a fixed rate of
interest which remains constant throughout the tenure of
investment irrespective of fluctuating market rates.
 The coupon on a Government Bond is mentioned in
nomenclature. For instance, 7% GOI 2021

Floating Rate Bonds (FRBs)
 As the name suggests, FRBs are subject to periodic changes in
rate of returns. The change in rates is undertaken at intervals
which are declared beforehand during the issuance of such
bonds
 Sovereign Gold Bonds (SGBs)
 The Central Government issues sovereign Gold Bonds,
wherein entities can invest in gold for an extended period
through such bonds, without the burden of investing in
physical gold. The interest earned on such bonds is exempted
from tax.

MAIN PLAYERS IN DEBT MARKET
 Central Govt & State Govt—to mange their short
term finance and long term finance
 RBI since it is the banker to the
government(Money market and Gsec under its
perview)
 SEBI –regulator of debt market and bond market
 Banks are the largest in the debt market to
maintain CRR,SLR and also for call money
 PRIMARY DEALERS –Market intermediaries
appointed by RBI (Two way quotes)
PRIMARY DEALERS
 Introduced by the RBI in 1995.
Primary dealers are registered entities with the
RBI who have the license to purchase and sell
government securities.
 Create a market for government securities.
Market Makers
 Satellite Dealers work in tandem with the
Primary Dealers forming the second tier of the
market

ROLE AND FUNCTIONS OF PRIMARY
DEALERS
 Giving marketability to government securities
commit participation as Principals in
Government of India issues through bidding in
auctions
 provide underwriting services
 offer firm buy – sell / bid ask quotes for T-Bills &
dated securities
 Development of Secondary Debt Market

STCI FINANCE LTD (FORMERLY SECURITIES
TRADING CORPORATION OF INDIA LIMITED
 . In May 1994, promoted by RBI
 In 1996, the Company was accredited as the first
Primary Dealer in the India
 RBI owned a majority stake of 50.18% in the paid
up share capital of the company.
 . As one of the leading Primary Dealers in the
country, the Company was a market maker in
government securities, corporate bonds and
money market instruments..
 In order to diversify into new activities, the
Company hived off its Primary Dealership
business to its separate 100% subsidiary, STCI
Primary Dealer Limited (STCI-PD) in June 2007.
 the name of the Company was changed from
Securities Trading Corporation of India to ‘STCI
Finance Limited’ with effect from October 24,
2011.
 STCI Finance Limited is a diversified midmarket B2B NBFC offering its product and
services across multiple locations in the areas of
Capital Markets, Real Estate, Corporate Finance
and Structured Finance.
 Presently STCI Finance Ltd is classified as
a loan NBFC.
DFHI –PRIMARY DEALER
 It is established by RBI and public sector banks
and financial institutions like LIC, GIC, UTI.
It's establishment is the result of long drawn
needs To bring equilibrium of liquidity in Indian
banking system, and also in financial markets
 To impart liquidity to the instruments of money
market prevalent in economy.
 It deals in all kind of instruments in money
market without any upper ceiling.
 Operating in two ways as borrower and lender.
 Now it's new name is SBI DFHI after giving it's
holding to SBI arm SBI gilts limited by RB
CRISIL
 CRISIL (formerly Credit Rating Information
Services of India Limited) is an Indian analytical
company providing ratings, research, and risk
and policy advisory services and is a subsidiary of
American company S&P Global.[
 CRISIL, was the first credit rating agency in
India, introduced in 1988 by
the ICICI and UTI jointly with share capital
coming from SBI, LIC and United India
Insurance Company.
 In April 2005, US based credit rating agency S&P
acquired the majority shares (51 percent) of
company
RATINGS
 AAA (Highest Safety)
 CRISIL AA (High Safety
 . CRISIL A (Adequate Safety)
 CRISIL BBB (Moderate Safety)
 CRISIL BB (Moderate Risk)
 CRISIL B (High Risk) Instruments with this rating
are considered to have high risk of default regarding
timely servicing of financial obligations.
 CRISIL C (Very High Risk) Instruments with this
rating are considered to have very high risk of default
regarding timely servicing of financial obligations.
 CRISIL D (Default)
ADVANTAGES OF DEBT MARKET
6.
1. Assured returns
2. Risk free
3. Safety
4. Highly liquid
5.Finance development activities
6. Reduced dependence on external resources
7.
Disadvantages..Retuns less than equity market
1.
2.
3.
4.
5.
TYPES OF BONDS /DEBENTURES
 Convertible /Non convertible
 Redeemable/Irredeemable
 Secured/Unsecured
 Face value -1000
 Premium-1100
 Discount -900