Capital market

Here are the main types of capital markets:

Primary Market: Involves companies and governments issuing new securities, such as stocks and bonds.

Secondary Market: Involves the trading of existing securities among investors.

Stock Market: A type of secondary market where investors buy and sell publicly traded company shares.

Bond Market: A market where investors buy and sell government, municipalities, and corporations-
issued bonds.

Commodity Market: Involves trading commodities, such as gold, oil, agricultural products, etc.

Derivatives Market: Involves the trading of financial instruments derived from an underlying asset, such
as options, futures, and swaps.

Foreign Exchange Market (Forex): The market where different currencies are bought and sold.

Money Market: A market for short-term debt securities, typically with less than one-year maturities.

1. Primary market= The primary market, also called the new issue market, is where issuers raise
capital by issuing securities to investors. Fresh securities are issued in this market.
Initial Public Offer (IPO): First sale of a company's common shares to the public, aimed at raising equity
capital for business expansion, governed by SEBI regulations.

Follow on Public Offer (FPO): Additional sale of securities by a listed company to the public, either
through fresh issue or offer for sale, typically to fuel growth or adjust capital structure.

Private Placement: Wholesale issuance of securities to select institutional investors, not involving public
offering, governed by Companies Act 2013 rather than SEBI regulations.

Qualified Institutional Placements (QIPs): Private placement of shares by a listed company to Qualified
Institutional Buyers (QIBs) as defined by SEBI, facilitating capital raising without public offering.

Preferential Issue: Private placement of specified securities by a listed issuer to select individuals or
groups, subject to SEBI regulations, excluding certain types of offerings.

Rights and Bonus Issues: Offering securities to existing shareholders based on a specific ratio, with rights
offering allowing shareholders to buy more at a set price, and bonus issue granting additional shares
without cost.

Onshore and Offshore Offerings: Capital raising either domestically (onshore) or internationally
(offshore), offering flexibility in reaching investors and regulatory implications.

Offer for Sale (OFS): Share sale where existing shareholders sell allotted shares, not resulting in an
increase in share capital, often utilized for disinvestment programs or secondary market transactions.

2. Secondary market= The secondary market facilitates trades in already-issued securities, thereby
enabling investors to exit from an investment or new investors to buy the already existing securities.
Over-The-Counter Market (OTC Market): Direct negotiation between counterparties for trading
securities, bypassing formal exchanges, enabling flexible terms but lacking centralized regulation.

Exchange Traded Markets: Trading of securities via formal stock exchanges, facilitating efficient and
regulated transactions, with clearing corporations ensuring settlement.

Trading: Formal agreement to buy or sell securities, conducted electronically in stock exchanges,
ensuring efficient and speedy execution of trades.

Clearing and Settlement: Post-trading activities involving ascertaining net obligations of buyers and
sellers, followed by settlement where payments or securities are delivered, managed by clearing houses
to mitigate operational risks.

Risk Management: Clearing corporations mitigate default risks by imposing margins like initial and mark-
to-market (MTM) margins, ensuring stability and security in exchange-traded transactions.

Market Intermediaries
Stock Exchanges: Provide trading platforms for buyers and sellers of securities, ensuring fair and efficient
transactions through electronic trading terminals and appointing clearing and settlement agencies.

Depositories: Hold securities in electronic form for investors, offering services for transactions and
dematerialized securities, with two registered depositories in India: CDSL and NSDL.

Depository Participant: Acts as an intermediary between investors and depositories, enabling investors
to hold and transact securities in dematerialized form, while maintaining company-level accounts of
securities issued.

Trading Members/Stock Brokers & Sub-Brokers: Facilitate buy and sell transactions on stock exchanges,
with sub-brokers assisting brokers in reaching a larger investor base, ensuring trades are routed through
registered brokers and adhering to exchange rules.

Authorised Person: Appointed by stock brokers/trading members to reach investors across the country,
each authorized person requires prior approval from the stock exchange for a specific segment.

Custodians: Safeguard funds and securities of large clients such as banks and insurance companies,
settling transactions, tracking corporate actions, and maintaining client portfolios.

Clearing Corporation: Ensures members meet obligations for funds or securities delivery, acting as a
legal counterparty and guaranteeing settlement of transactions on stock exchanges, either as part of an
exchange or a separate entity.

Clearing Banks: Serve as intermediaries between clearing members and clearing corporations,
facilitating fund transfers to meet trade obligations, ensuring availability of funds in clearing members'
accounts.
Merchant Bankers: Registered with SEBI, they assist issuers in accessing the securities market, managing
new issues from evaluation to listing, coordinating with various intermediaries involved in the process.

Underwriters: Undertake to subscribe any unsold portion of public offer securities, providing comfort to
issuers in primary markets, either through hard underwriting (commitment at IPO stages) or soft
underwriting (commitment after pricing).

Financial Instruments traded on stock market i.e. secondary market

Instruments traded in stock market
Stocks
Stocks or Equity instruments represent ownership in a company. They represent the residual
claim on the assets and profits of a corporation after all debts have been paid. The holders of
these stocks, called shareholders, are entitled to dividends when declared by the company and
may vote for key decisions such as board members.
Equities
Equities are the instruments of capital market that involve buying and selling shares. They
represent ownership in a company and enable individuals to share in the profits or losses
generated by the company. By owning equities, investors may receive a dividend income from
companies when they declare dividends and any potential capital appreciation. Investors can
purchase equities directly from the companies offering them or through stock exchanges.
Bonds
Bonds function as tools for issuers to secure funds from investors by offering them a debt-based
investment opportunity. These instruments guarantee periodic interest payments and the
repayment of the principal amount upon maturity, all at a predetermined interest rate. The
value of bonds can fluctuate in the secondary market, influenced by various factors such as
credit ratings, changes in the economy, and other pertinent considerations. In this type of
capital market instrument, investors can take part in this market by buying and selling bonds,
considering these factors and potential returns.
Derivatives
Investors can efficiently and profitably reach their financial goals by using derivatives. Financial
derivatives derive their value from an underlying asset, like stocks, commodities, or currencies.
They are mainly used to hedge against price fluctuations in the underlying asset and to
speculate on future market trends.
Commodities
Commodities serve as tangible capital market instruments that encompass essential raw
materials and primary goods of commerce. These include agricultural products, steel, other
metals, energy sources such as coal and oil, and livestock. Commodities are traded on a
regulated exchange through futures contracts that require the buyer to purchase the
commodity at a fixed price in the future.
Mutual Funds
Mutual funds are an ideal choice for people who want to invest but lack the expertise or time to
manage their portfolio of stocks and bonds. It involves pooling together money from various
investors with similar investment objectives and investing in various securities such as equities,
debt instruments etc. The performance of these funds depends on the type of fund, its asset
composition, the market conditions, etc.
Exchange Traded Funds (ETFs)
ETFs are like mutual funds that track an index, commodity or basket of assets like an index fund,
but they trade like a stock on an exchange throughout the day. ETFs have become increasingly
popular over recent years due to their low cost, tax efficiency, and diversity. They are an easy
way to diversify a portfolio and take advantage of different market sectors without purchasing
multiple stocks.
Initial Public Offerings (IPOs)
An IPO signifies when a privately-held company transforms into a publicly-traded entity, making
its shares available for the general public to purchase for the first time. Companies utilize IPOs
to raise capital from public investors and list their shares on a stock exchange.
Real Estate Investment Trusts (REITs)
REITs serve as a capital market instrument that amass funds from investors to invest in real
estate properties that generate income. They allow individuals to invest in real estate without
directly owning physical properties. REITs distribute a significant portion of their income as
dividends to investors.
The appeal of REITs lies in their liquidity, providing the flexibility to buy or sell shares,
diversification benefits, and the potential for regular income, making them an attractive
investment option.
Exchange-Traded Funds (ETFs)
ETFs are investment funds traded on stock exchanges, akin to individual stocks. Their objective
is to mirror the performance of a specific index, sector, or asset class. This capital market
instrument offer advantages such as diversification across multiple securities, flexibility in daily
trading, and transparency in tracking underlying assets.
Equity Funds:
By Sector & Themes

Dividend Yield: Invests in dividend paying stocks

Sectoral-Banking: Invests in banking stocks

Sectoral-Technology: Invests in Technology stocks

Sectoral-Infrastructure: Invests in Infra stocks

Thematic-Consumption: Invests in consumption stocks

Thematic-Energy: Invests in Energy stocks

Sectoral-Pharma: Invests in Pharma stocks

Thematic-PSU: Invests in PSU stocks

Thematic-MNC: Invests in MNC stocks

Thematic: Invests in a specific theme

Thematic-ESG: ESG Thematic Funds: Invest in Top-performing ESG themed funds in India

International Index: Invest to replicate sector-specific indices

Other Equity Index: Passively invest in top 100 companies

By Solutions

ELSS: Invest to save taxes under 80C and earn additional returns

Retirement Solutions: Aggressive saving strategy for retirement

By Diversification

Multi Cap: Invests in stocks across market cap

Flexi Cap: Invests across large, mid and small-cap stocks
Focused: Invests in top stocks in specific industry/segment

Value Oriented: Invests in under-valued stocks with upside potential

International: Invests in world's top stocks

Contra: Invests against the prevailing market trends

Equity FoF: Funds that invests in other equity schemes

By Market Capitalization

Large Cap: Invests in Top 100 stocks

Mid Cap: Invests in Next 150 stocks

Small Cap: Invests outside Top 250 stocks

Large & Midcap: Invests in Top 250 stocks

Large Cap Index: Passively invest in top 100 companies

Mid Cap Index: Invest to replicate mid-cap indices

Small Cap Index: Invest to replicate small-cap indices

Debt market Instruments

Some common debt instruments include:
Bonds: Fixed-income securities that provide interest payments and principal repayment at
maturity
Debentures: A type of debt instrument
Fixed deposits: Interest earned is subject to tax for the financial year
Certificates of deposit: A type of debt instrument
Commercial papers: A type of debt instrument
Mortgage: A type of debt instrument
Government securities: A type of debt instrument

Instruments of Money Market

Issued by Government = Treasury Bills, Cash Management Bills, repurchase agreements
Issued by Companies/Firms= Commercial Papers, Promissory Notes
Issued by Financial Institutions= Certificate of Deposits, Call Money,

Bonds
Zero-Coupon Bond: Bonds issued at a discount without periodic interest payments; redeemed at par,
offering a return through the difference between the purchase and redemption price.

Floating-Rate Bonds: Bonds with variable interest rates tied to benchmarks like inter-bank rates,
adjusting periodically, reducing interest rate risk.
Convertible Bonds: Debt instruments allowing conversion to equity at predetermined terms, offering
potential capital appreciation and lower coupon rates, but diluting existing shareholders' stakes upon
conversion.

Amortization Bonds: Bonds where each payment includes both interest and principal, unlike traditional
bonds, with initial payments having a higher interest component.

Callable Bonds: Bonds giving issuers the right to redeem before maturity, advantageous in lowering
borrowing costs when interest rates fall, but potentially disadvantageous for investors if called early.

Puttable Bonds: Bonds giving investors the right to demand redemption before maturity, beneficial
during rising interest rates, allowing investors to reinvest at higher rates, but posing cash flow risks for
issuers.

Treasury Bonds
The central government issues treasury bonds. Hence, it is the safest type of bond because there is no
credit risk. These bonds have a maturity period of ten to thirty years and pay a fixed interest rate, which
is a factor in the prevailing market conditions.

2. Municipal Bonds
Local and state governments use these to gather funds for development projects such as schools,
highways, and hospitals. Municipal Bonds are exempted from tax. They are available in both short-term
and long-term maturities.

3. Corporate Bonds
Companies or business conglomerates issue corporate bonds to raise capital for their business
operations. They are riskier than treasury bonds because the creditworthiness of the issuing company
backs them. Corporate bonds can have varying maturities and interest rates, depending on the issuer's
creditworthiness and market conditions.

4. High-yield Bonds
Companies issue high-yield bonds with lower credit ratings and are riskier than investment-grade bonds.
They offer a higher yield to compensate for the higher risk. High-yield bonds are also known as junk
bonds.
Green Bonds
Green bonds are debt securities issued to fund environmentally friendly projects like renewable energy
or pollution reduction. This allows investors to support sustainability while earning interest.
4. Retail Bonds
A retail bond offering allows a company to raise additional capital by borrowing at a fixed rate from an
investor for a specific length of time. Companies typically issue retail bonds to expand their business, pay
off debt, or fund a specific project, as with any capital raising. Retail bonds are typically listed and can
thus be bought and sold during regular market hours, allowing investors more flexibility.
6. Electoral Bonds
General public can issue these bonds to fund eligible political parties. A political party that classifies as
eligible to run campaigns must be registered in the Representation of the People Act, 1951, under
Section 29A. Additionally, to classify as a registered political party, the party should secure not less than
1% of votes polled from the prior general election to the legislative assembly. There are tax benefits to
issuing electoral bonds.
Sovereign gold bonds= Sovereign gold bonds are government-backed securities denominated in grams
of gold, offering investors an opportunity to earn interest while also benefiting from potential
appreciation in gold prices, without the hassle of physical storage. They provide a convenient and secure
way for individuals to invest in gold and are redeemable at the prevailing market price upon maturity.

Types of Debentures
Debentures are a debt to a firm, but they are preferred because there is no equity dilution. It is just a
form of loan which is used for a company’s long-term profit and growth. There are various types of
debentures in the market and one should always know about these before choosing the one to be
purchased.

1. Convertible Debentures- One of the various types of debentures is convertible debentures. The most
significant feature of differentiation of a convertible debenture is that it can be converted into shares or
stocks at a certain point in time or when the firm notifies of the same. Although these debentures have a
lower interest rate when compared to stock, they are extremely useful.

2. Partially Convertible Debentures- The debentures which can be converted into shares but to a certain
limit or a certain percentage are known as partially convertible debentures. It is hybrid as after its partial
conversion, some portion remains debenture while some become part of the company’s share.

3. Non- Convertible Debentures- These are normal or basic kinds of debentures which can never be
converted into stocks after they have been issued and till the time they exist.

4. Registered Debentures- The kind of debentures which are transferred providing a pepper proof of
records and documents needed for it. These are one of the safest kinds of debentures as there is less
chance of fraud compared to bearer debentures discussed below.

5. Bearer Debentures- The type of debentures that are unregistered and can be delivered after purchase
without any compulsory need for evidence or record are known as bearer debentures. There is no
tertiary involvement in the transaction for a bearer debenture and it a comparatively more prone to tax
evasion and fraud.

6. Secured Debenture- These are the kind of debentures that are like an alternative to a loan where the
collateral is needed to make money and when the firm starts paying off the debts at the time of its
closure due to any reason, then the secured debenture holders are paid first.

7. Unsecured Debentures- The type of debentures which don’t need any kind of collateral are unsecured
debentures and are preferred less at the time of payment compared to secured debentures.

8. Redeemable Debentures- The debentures which are purchases for a pre-specified period and are paid
by the end of this time are known as redeemable debentures.

9. Irredeemable Debentures- Also known as perpetual debentures, irredeemable debentures don’t have
a fixed time for the redemption of the invested amount.
FOREX MARKET INSTRUMENTS
Here are some of the primary instruments traded in the forex market:

Spot Market: This is where currencies are bought and sold for immediate delivery, typically settled
within two business days. It's the most common form of forex trading and involves the exchange of
currencies at the current market rate.

Forwards: A forward contract is an agreement between two parties to buy or sell a specified amount of
currency at a predetermined price (exchange rate) on a future date. Unlike spot transactions, forwards
are settled at a future date, usually ranging from a few days to several months.

Futures: Similar to forwards, futures contracts involve an agreement to buy or sell a specific currency
pair at a predetermined price and date. However, futures contracts are standardized and traded on
organized exchanges, such as the Chicago Mercantile Exchange (CME). They have clearing houses that
guarantee the performance of the contracts, reducing counterparty risk.

Options: Forex options give the holder the right, but not the obligation, to buy or sell a currency pair at a
specified price (strike price) within a predetermined time frame. There are two types of options: call
options (which give the holder the right to buy) and put options (which give the holder the right to sell).
Options provide flexibility and allow traders to hedge against unfavorable currency movements while
potentially benefiting from favorable ones.

Swaps: Forex swaps involve the simultaneous purchase and sale of the same amount of a currency (or
two different currencies) for two different value dates. They are used primarily for hedging purposes or
to roll over positions to the next trading day without taking delivery of the underlying currency.

Exchange-Traded Funds (ETFs): Forex ETFs track the performance of a basket of currencies or a specific
currency pair. They allow investors to gain exposure to the forex market without directly trading
currencies themselves. Forex ETFs are traded on stock exchanges, providing liquidity and ease of access
to retail investors.

Contracts for Difference (CFDs): CFDs are derivative products that allow traders to speculate on the price
movements of currency pairs without owning the underlying assets. Instead, they enter into an
agreement with a broker to exchange the difference in the value of the currency pair between the
opening and closing of the contract. CFDs offer leverage, enabling traders to amplify potential returns,
but also magnify losses

COMMODITY MARKETS: A commodity market is where you can buy and sell goods taken from the
earth, from cattle to gold, oil to oranges, and orange juice to wheat. Commodities can be turned into
products like baked goods, gasoline, or high-end jewelry, which in turn are bought and sold by
consumers and other businesses. Markets in these goods are the oldest in the world. commodities are
often split into two broad categories: hard and soft commodities. Hard commodities include natural
resources that must be mined or extracted, such as gold, rubber, and oil, while soft commodities are
agricultural products or livestock, such as corn, wheat, coffee, sugar, soybeans, and pork. They are traded
directly in spot markets or financial commodity markets through contracts for them or their future
prices.
Futures Contracts: Agreements to buy/sell a set quantity of a commodity at a fixed price on a future
date, traded on exchanges like CME or ICE, enabling hedging against price fluctuations.

Options Contracts: Provide the right (but not obligation) to buy (call) or sell (put) a commodity at a
predetermined price within a specified timeframe, offering flexibility for risk management in commodity
trading.

Spot Market: Immediate buying/selling of physical commodities for prompt delivery and payment,
driven by supply/demand dynamics, typically completed within days.

Exchange-Traded Funds (ETFs): Track commodity performance or baskets, traded on stock exchanges,
providing exposure without direct futures trading, akin to stocks.

Commodity Index Funds: Invest in diversified commodity portfolios matching specific indexes (e.g., S&P
GSCI), traded like mutual funds/ETFs, aiming to mirror index performance.

Commodity Swaps: Contracts exchanging cash flows based on commodity price movements, facilitating
hedging or speculation with customizable terms.

Physical Trading: Direct buying/selling of physical commodities, like agricultural products or metals,
involving logistics and often complementing futures/options for risk management.

Financial markets and its instruments

1. Equity markets= Stocks, Warrants
2. Debt Markets= 1. Bond markets= Corporate bonds, Government bonds
2. Money markets= Treasury bills, Commercial papers, Certificate of deposits,
Repurchase agreements,
4. Derivatives market= futures, option, forwards, swaps
5. Forex markets
6. Commodities market= Agriculture commodity, precious metal, Industrial metal, Energy and related
products and Carbon credits
7. Cryptocurrency markets=

Types of financial Instruments

1. Fixed Income Debt Investments= Corporate or Government bonds/ Debentures, Term deposits,
Treasury bills, Certificate of deposits, Commercial Papers
2. Equities= Stocks, Warrants
3. Commodities= Agriculture commodity, precious metal, Industrial metal, Energy and related products
and Carbon credits.
4. Traditional Safe Investments= PPF, NSE, Post Office Savings, Equity Linked Savings Schemes (ELSS)
5. Alternative Investments= Real Estate, Venture Capital, Private Equities
6. Pooled Investments= Mutual Funds, Insurance Companies, Pensions funds, Trust and Foundation.

Types of Government Securities

1. Treasury Bills=
Treasury bills (T-bills) are short-term debt instruments issued by the government through the central
bank (e.g., the Reserve Bank of India to raise funds for a short period, typically ranging from a few days
to one year.

Maturity Periods: T-bills come with different maturity periods, commonly 91 days (3 months), 182 days
(6 months), and 364 days (1 year).

Discounted Instrument: Treasury bills are typically issued at a discount to their face value. The difference
between the face value and the discounted purchase price represents the investor's return.

Interest Rate: T-bills do not pay periodic interest like traditional bonds. Instead, the return is realized
through the difference between the purchase price and the face value.

Issuance and Auctions: Governments typically issue T-bills through periodic auctions. Investors submit
bids specifying the quantity they want to purchase and the interest rate/ yield they are willing to accept.

Liquidity: T-bills are highly liquid instruments. They can be bought and sold in the secondary market
before maturity, allowing investors to liquidate their investment if needed.

Risk-Free: T-bills are often considered risk-free investments since they are backed by the government.

2. Treasury Notes= Treasury notes (T-notes) are medium-term debt securities issued by
governments, through its central bank (RBI) or treasury department. and they share some similarities
with Treasury bills (T-bills) but have longer maturities.

Maturity Periods: Treasury notes have longer maturities compared to T-bills, typically ranging from 2 to
10 years.

Interest Payments: Unlike T-bills, Treasury notes pay periodic interest to investors. The interest rate, also
known as the coupon rate, is fixed at the time of issuance and is applied to the face value of the note.
Investors receive semi-annual interest payments. The interest payments are calculated based on this face
value.

Face Value: The face value of a Treasury note is the amount that the government promises to pay the
holder upon maturity.

Price: Treasury notes may trade at a premium or discount in the secondary market based on changes in
interest rates since the time of issuance.

Issuance and Auctions: Similar to T-bills, Treasury notes are typically issued through auctions.

Liquidity: While not as liquid as T-bills, Treasury notes are still considered relatively liquid investments
because Treasury notes can be bought and sold on the secondary market before their maturity date.
secondary market provides liquidity and allows investors to sell their bonds if needed.

Risk Profile: Treasury notes are considered low-risk investments, as they are backed by the government.
However, they are subject to interest rate risk; if market interest rates rise, the value of existing notes in
the secondary market may decline.

Treasury bonds (T-bonds) are long-term debt securities issued by governments. They differ from Treasury
bills (T-bills) and Treasury notes (T-notes) primarily in their longer maturity periods. Here are the key
specifications of Treasury bonds:

3. Treasury Notes
Issuer: Treasury bonds are issued by the government through its treasury department or central bank.

Maturity Periods: Treasury bonds have longer maturities compared to both T-bills and T-notes. They
typically have maturities ranging from 10 to 30 years.

Interest Payments: Similar to T-notes, Treasury bonds pay periodic interest to investors. The interest
rate, also known as the coupon rate, is fixed at the time of issuance and is applied to the face value of
the bond. Investors receive semi-annual interest payments.

Face Value: The face value of a Treasury bond is the amount that the government promises to pay the
holder upon maturity. The interest payments are calculated based on this face value.

Price: Like T-notes, Treasury bonds may trade at a premium or discount in the secondary market based
on changes in interest rates since the time of issuance. Changes in market interest rates can impact the
value of existing bonds in the secondary market.

Issuance and Auctions: Treasury bonds are typically issued through auctions and bids.

Liquidity: While not as liquid as T-bills, Treasury notes are still considered relatively liquid investments
because Treasury notes can be bought and sold on the secondary market before their maturity date.
secondary market provides liquidity and allows investors to sell their bonds if needed.

Risk Profile: Treasury bonds are generally considered low-risk investments as they are backed by the
government. However, they are subject to interest rate risk; if market interest rates rise, the value of
existing bonds in the secondary market may decline.

4. Cash Management Bills= similar to Treasury bills (T-bills) are short-term debt instruments
issued by the government through the central bank (e.g., the Reserve Bank of India to raise funds for a
short period) For Less than 91 Days. Issued at Discount and redeemed at Par. Other specifications are
same like treasury bills.

5. State Development Loans=

State Development Loans (SDLs) are debt instruments issued by state governments in India to raise funds
for various development projects and to meet their financial requirements.

Issuer: State Development Loans are issued by state governments in India. Each state government is
allowed to issue its own SDLs, and the securities are regulated by the Reserve Bank of India (RBI).

Maturity Periods: SDLs come with different maturity periods, ranging from short-term to long-term,
typically up to 30 years.

Interest Payments: SDLs pay periodic interest to investors, usually on a semi-annual basis. The interest
rate is fixed and interest payments are calculated based on this face value.

Face Value: The face value of an SDL is the amount that the state government promises to pay the holder
upon maturity.

Coupon Rate: The interest rate on SDLs is also known as the coupon rate. It is the fixed annual interest
rates.

Issuance and Auctions: State governments issue SDLs through auctions and bids conducted by the
Reserve Bank of India. Investors, including banks, financial institutions, and individuals, participate in
these auctions

Market Liquidity: SDLs are traded on the secondary market, providing investors with the option to buy
or sell these securities before their maturity date.

Credit Risk: The credit risk associated with SDLs is linked to the financial health of the respective state
government.

4. Zero Coupon Bonds=

Zero coupon bonds, also known as zero-coupon securities, are debt instruments that do not make
periodic interest payments like traditional bonds. Instead, they are issued at a discount to their face
value and provide a return to investors through capital appreciation.

Issuance: Zero coupon bonds are typically issued by governments, municipalities, corporations, and
other entities as a way to raise capital.

Face Value: The face value, also known as the par value or maturity value, is the amount the bond will be
worth at maturity. Investors purchase zero coupon bonds at a discount to the face value.
Purchase Price: Investors buy zero coupon bonds at a price below the face value, and this difference
represents the implicit interest or yield.

Maturity Period: Zero coupon bonds have a fixed maturity date, at which point the investor receives the
face value of the bond. Maturities can range from a few months to several years.

Coupon Rate: Zero coupon bonds do not have a stated coupon rate because they do not make periodic
interest payments.

Yield to Maturity (YTM): The yield to maturity is the annualized rate of return an investor can expect to
receive if the zero-coupon bond is held until maturity. It takes into account both the purchase price and
the face value.

Interest Accrual: While zero coupon bonds do not make periodic interest payments, as the difference
between the purchase price and face value is considered interest income.
Liquidity: Zero coupon bonds can be less liquid than traditional coupon-paying bonds since they don't
provide regular income. However, they can be traded on the secondary market before maturity.

Risk Profile: Zero coupon bonds are generally considered lower risk than other types of bonds issued by
the same entity, as they are backed by the issuer's ability to repay the face value at maturity.

Callable or Non-callable: Some zero-coupon bonds may be callable, allowing the issuer to redeem the
bonds before maturity, while others are non-callable.

5. Capital Indexed Bonds are a type of fixed-income security designed to protect investors from
the erosive effects of inflation. These bonds provide returns that are linked to changes in a specific
inflation index, ensuring that the purchasing power of the invested capital is maintained. The
specifications of capital indexed bonds may vary depending on the issuing country or financial
institution.

Issuer: Capital Indexed Bonds are typically issued by governments or government-related entities as a
means to raise funds while providing investors with a hedge against inflation.

Inflation Index: The returns on these bonds are linked to a specific inflation index, such as the Consumer
Price Index (CPI). The principal amount and interest payments may be adjusted periodically based on
changes in the inflation index.

Principal Protection: One of the key features of capital indexed bonds is the protection of the real value
of the principal amount. As inflation rises, the principal amount is adjusted upwards to maintain its
purchasing power.

Coupon Payments: While the interest payments on traditional bonds are fixed, capital indexed bonds
usually have variable interest payments. These payments are often calculated based on the inflation-
adjusted principal.

Maturity Period: Capital indexed bonds have a fixed maturity period, similar to other fixed-income
securities. The investor receives the adjusted principal amount at maturity
Real Yield: The real yield of capital indexed bonds reflects the return after accounting for changes in
inflation. Investors are compensated not only for the time value of money but also for the erosion or
enhancement of purchasing power due to inflation.

Issuance and Auctions: Governments may issue capital indexed bonds through auctions, allowing
investors to bid on the bonds based on their desired real yield.

Liquidity: The liquidity of capital indexed bonds depends on market demand. While they are generally
less liquid than conventional bonds, they can still be bought and sold on the secondary market.

Risk Profile: Capital indexed bonds are often considered lower risk than traditional bonds for investors
concerned about inflation. However, they are not entirely risk-free, and factors such as changes in
inflation expectations and interest rates can influence their market value.

Savings Bonds are government securities that offer a safe and low-risk investment option for individuals.
The specifications of savings bonds can vary by country, and here are some general features commonly
associated with savings bonds:

Issuer: Savings bonds are typically issued by governments to raise funds from individual investors. In the
United States, for example, savings bonds are issued by the U.S. Department of the Treasury.

Types: There are different types of savings bonds, each with its own set of features. In the United States,
common types include Series EE bonds, Series I bond, and the older Series HH bonds (no longer issued
but still held by some investors).

Purchase Price: Investors can buy savings bonds at face value, meaning they pay the full amount of the
bond's value. The purchase price is typically lower than the face value for Series EE bonds, but the bonds
are worth their face value at maturity.

Face Value: The face value, also known as the maturity value, is the amount the bond will be worth at
maturity. Unlike some other bonds, savings bonds do not pay periodic interest; instead, they accrue
interest over time.

Interest Accrual: Savings bonds earn interest over a fixed period, and this interest is added to the bond's
principal. The interest accrual varies depending on the type of savings bond. For Series EE bonds, interest
accrues monthly, while Series I bond accrue interest based on a combination of a fixed rate and an
inflation rate.

Maturity Period: Savings bonds have fixed maturity periods, typically ranging from several years to up to
30 years. At maturity, the bondholder receives the face value plus any accrued interest.

Redemption: While savings bonds have fixed maturity periods, they can be redeemed before maturity,
but early redemption may result in a penalty. Series EE bonds have a minimum holding period before
they can be redeemed without penalty.
Safety: Savings bonds are considered low-risk investments because they are backed by the government.
They are not subject to market fluctuations, making them a stable and secure option for conservative
investors.

Transferability: Savings bonds are typically non-transferable, meaning they are registered in the owner's
name, and ownership cannot be transferred to another individual.

Savings bonds are often used as a long-term savings tool or as a gift for special occasions. They provide a
secure way for individuals to save money with the added benefit of government backing. Before
investing in savings bonds, individuals should carefully review the terms and conditions associated with
the specific type of bond they are considering and be aware of any tax implications.