DEBT MARKET & MUTUAL FUNDS

(INTRODUCTION)

Dr. Ramesh Chandra Babu,

M.Com.,MBA.,FDPM(IIM-A), UGC-NET, MISTE, Ph.D
Associate Professor,
School of Business & Management,
CHRIST University
DEBT INSTRUMENTS:
Debt instruments are contracts in which one party lends money to another on
pre-determined terms with regard to rate of interest to be paid by the
borrower to the lender, the periodicity of such interest payment, and the
repayment of the principal amount borrowed.

In the Indian securities markets, we generally use the term ‘bond’ for debt
instruments issued by the Central and State governments and public sector
organisations, and

the term ‘debentures’ for instruments issued by private corporate sector.

INSTRUMENT FEATURES
The principal features of a bond are:
a) Maturity
b) Coupon
c) Principal
Maturity and Term-to-maturity
In the bond markets, the terms maturity and term-to-maturity, are
used quite frequently.
“Maturity” of a bond refers to the date on which the bond matures, or
the date on which the borrower has agreed to repay (redeem) the
principal amount to the lender. The borrowing is extinguished with
redemption, and the bond ceases to exist after that date.

“Term to maturity”, on the other hand, refers to the number of years

remaining for the bond to mature. ‘Term to maturity’ of a bond
changes everyday, from the date of issue of the bond until its maturity.
Coupon Rate
Coupon Rate refers to the periodic interest payments that are
made by the borrower (who is also the issuer of the bond) to
the lender (the subscriber of the bond) and the coupons are
stated upfront either directly specifying the number (e.g.8%) or
indirectly tying with a benchmark rate (e.g. MIBOR+0.5%).
Coupon rate is the rate at which interest is paid, and is usually
represented as a percentage of the par value of a bond.
Define LIBOR? How is LIBOR arrived at ?

LIBOR - London Inter Bank Offered Rate

LIBOR is the average interest rate estimated by leading banks in London that
they would be paying if they borrow from other banks.

LIBOR is arrived at each day by BBA through a survey from 18 major global
banks for the USD by asking the question "At what rate could you, borrow funds,
were you to do so by asking for and then accepting inter bank offers in a
reasonable market size just prior to 11.00 AM (London local time). Then BBA
excludes the highest 4 and lowest 4 responses, and averages the remaining 10
responses. This average rate is published at 11.30 AM. As we have made it
clear it is declared for 15 different maturities i.e. 1 day (overnight) to 1
year. Thus, we can say that LIBOR is a set of indexes.
Define MIBOR? How is MIBOR arrived at ?

MIBOR - Mumbai Inter Bank Offered Rate

MIBOR is the interest rate at which banks can borrow funds, in marketable size,
from other banks in the Indian interbank market.

MIBOR is calculated everyday by the National Stock Exchange of India (NSEIL)

as a weighted average of lending rates of a group of banks, on funds lent to
first-class borrowers. The MIBOR was launched on June 15, 1998 by the
Committee for the Development of the Debt Market, as an overnight rate. The
NSEIL launched the 14-day MIBOR on November 10, 1998, and the one month
and three month MIBORs on December 1, 1998. Further, the exchange
introduced a 3 Day FIMMDA-NSE MIBID-MIBOR on all Fridays with effect from
June 6, 2008 in addition to existing overnight rate. Thus, we can say that
MIBOR is is arrived now a days by FIMMDA and NSE, based on inputs from
Public Sector Banks, Private Sector Banks, Primary Dealers and Foreign Banks
 FIMMDA
Fixed Income Money Market and Derivative Association of India (FIMMDA) has been in the forefront for
creation of benchmarks that can be used by the market participants to bring uniformity in the market
place. To take the process of development further, FIMMDA and NSEIL have taken the initiative to co-
brand the dissemination of reference rates for the Overnight Call and Term Money Market using the
current methodology behind NSE – MIBID/MIBOR. The product was rechristened as 'FIMMDA-NSE
MIBID/MIBOR'. The 'FIMMDA-NSE MIBID/MIBOR' is now jointly disseminated by FIMMDA as well as
NSE.
MIBID or Mumbai Interbank Bid Rate

MIBID or Mumbai Interbank Bid Rate is the rate of interest that a bank would be willing to pay to
secure a deposit from another bank in the Indian interbank market.

The MIBID rate is the weighted average of all interest rates that the participating banks offer on
deposits on a particular day. It is calculated by the National Stock Exchange (NSE).
MIBID V/S MIBOR

MIBID is the rate at which banks would like to borrow

from other banks and MIBOR is the rate at which banks
are willing to lend to other banks.
 What is the importance of LIBOR and MIBOR ?

The Libor is widely used as a reference rate / bench

mark for many financial instruments in both financial
markets and commercial fields.
Secured Overnight Financing Rate (SOFR)

Secured Overnight Financing Rate (SOFR) is a secured interbank overnight interest rate.
SOFR is a reference rate established as an alternative to LIBOR.

The Secured Overnight Financing Rate (SOFR) is a new interest rate benchmark for
business and consumer lending that has replaced Libor.
 Principal
Principal is the amount that has been borrowed, and is also called the
par value or face value of the bond. The coupon is the product of
the principal and the coupon rate. Typical face values in the bond
market are Rs. 100, though there are bonds with face values of Rs.
1000 and Rs.100000 and above. All Government bonds have the face
value of Rs.100. In many cases, the name of the bond itself conveys
the key features of a bond.

For example a GS CG2022 11.40% bond refers to a Central

Government bond maturing in the year 2022, and paying a coupon of
11.40%. Since Central Government bonds have a face value of Rs.100,
and normally pay coupon semi-annually, this bond will pay Rs. 5.70 as
six- monthly coupon, until maturity, when the bond will be redeemed.
What is the Debt Market?
The Debt Market is the market where fixed income securities of
various types and features are issued and traded.

Debt Markets are therefore, markets for fixed income securities

issued by Central and State Governments, Municipal Corporations,
Govt. bodies and commercial entities like Financial Institutions,
Banks, Public Sector Units, Public Ltd. companies and also
structured finance instruments.
What is the Money Market?
The Money Market is basically concerned with the issue and trading
of securities with short term maturities or quasi-money
instruments.

The Instruments traded in the money-market are Treasury Bills,

Certificates of Deposits (CDs), Commercial Paper (CPs), Bills of
Exchange and other such instruments of short-term maturities (i.e.
not exceeding 1 year with regard to the original maturity)
MODIFYING THE COUPON OF A BOND

Plain vanilla bond

In a plain vanilla bond, coupon is paid at
a pre-determined rate, as a percentage of
the par value of the bond.
Several modifications to the manner in
which coupons / interest on a bond are
paid are possible.
Zero Coupon Bond
In such a bond, no coupons are paid. The bond is instead issued at a
discount to its face value, at which it will be redeemed. There are no
intermittent payments of interest.
When such a bond is issued for a very long tenor, the issue price is at a
steep discount to the redemption value. Such a zero coupon bond is
also called a deep discount bond.

The effective interest earned by the buyer is the difference between

the face value and the discounted price at which the bond is bought.
There are also instances of zero coupon bonds being issued at par, and
redeemed with interest at a premium.
Treasury Strips
Strips is an acronym for Separate Trading of Registered Interest and
Principal Securities.

In the United States, government dealer firms buy coupon paying

treasury bonds, and create out of each cash flow of such a bond, a
separate zero coupon bond. For example, a 7-year coupon-paying
bond comprises of 14 cash flows, representing half-yearly coupons and
the repayment of principal on maturity. Dealer firms split this bond into
14 zero coupon bonds, each one with a differing maturity and sell them
separately, to buyers with varying tenor preferences. Such bonds are
known as treasury strips.
We do not have treasury strips yet in the Indian markets. RBI and
Government are making efforts to develop market for strips in
government securities.
Floating Rate Bonds
Instead of a pre-determined rate at which coupons are paid, it is
possible to structure bonds, where the rate of interest is re-set
periodically, based on a benchmark rate. Such bonds whose coupon
rate is not fixed, but reset with reference to a benchmark rate, are
called floating rate bonds.
For example, IDBI issued a 5 year floating rate bond, in July 1997, with
the rates being reset semi-annually with reference to the 10 year yield
on Central Government securities and a 50 basis point mark-up. In this
bond, every six months, the 10-year benchmark rate on government
securities is ascertained. The coupon rate IDBI would pay for the next
six months is this benchmark rate, plus 50 basis points.
The coupon on a floating rate bond thus varies along with the
benchmark rate, and is reset periodically.
Capital Indexed Bonds &
Inflation indexed bonds
MASALA BONDS
Masala Bonds are rupee-denominated bonds issued outside India by
Indian entities.
Masala Bonds were introduced in India in 2014 by International
Finance Corporation (IFC).
Masala Bonds were introduced in India in 2014 by International
Finance Corporation (IFC).
Indian entities like HDFC, NTPC and Indiabulls Housing have raised
funds via Masala Bonds.
What Is a Samurai Bond?
A Samurai bond is a yen-denominated
bond issued in Tokyo by a non-
Japanese company and subject to
Japanese regulations.
Other types of yen-denominated bonds
are called Euroyens and issued in
countries other than Japan, typically in
London.
What Is a Dim Sum Bond?
"Dim sum bond' is a slang term for bonds denominated in
Chinese renminbi and issued in Hong Kong. Dim sum bonds are
attractive to foreign investors who desire exposure to renminbi-
denominated assets, but are restricted by China's capital
controls from investing in domestic Chinese debt.

The term is derived from dim sum, a popular style of cuisine in

Hong Kong which involves serving a variety of small delicacies.
What Is a Green Bond?
A green bond is a type of fixed-income instrument
that is specifically earmarked to raise money for
climate and environmental projects. These bonds are
typically asset-linked and backed by the issuing
entity’s balance sheet, so they usually carry the same
credit rating as their issuers’ other debt obligations.​
MODIFYING THE TERM TO MATURITY OF A BOND
Callable Bonds
Bonds that allow the issuer to alter the tenor of a bond, by redeeming
it prior to the original maturity date, are called callable bonds. The
inclusion of this feature in the bond’s structure provides the issuer the
right to fully or partially retire the bond, and is therefore in the nature
of call option on the bond.
Since these options are not separated from the original bond issue,
they are also called embedded options.

A call option can be an European option, where the issuer specifies the
date on which the option could be exercised.
Alternatively, the issuer can embed an American option in the bond,
providing him the right to call the bond on or anytime before a pre-
specified date.
Puttable Bonds
Bonds that provide the investor with the right to seek redemption from the
issuer, prior to the maturity date, are called puttable bonds. The put options
embedded in the bond provides the investor the rights to partially or fully sell
the bonds back to the issuer, either on or before pre-specified dates. The actual
terms of the put option are stipulated in the original bond indenture.

A put option provides the investor the right to sell a low coupon-paying bond to
the issuer, and invest in higher coupon paying bonds, if interest rates move up.
The issuer will have to re-issue the put bonds at higher coupons.

Puttable bonds represent a re-pricing risk to the issuer. When interest rates
increase, the value of bonds would decline. Therefore put options, which seek
redemptions at par, represent an additional loss to the issuer.
Convertible Bonds
A convertible bond provides the investor the option to convert the value of the
outstanding bond into equity of the borrowing firm, on pre-specified terms.
Exercising this option leads to redemption of the bond prior to maturity, and its
replacement with equity.
At the time of the bond’s issue, the indenture clearly specifies the conversion
ratio and the conversion price. The conversion ratio refers to the number of
equity shares, which will be issued in exchange for the bond that is being
converted. The conversion price is the resulting price when the conversion ratio
is applied to the value of the bond, at the time of conversion. Bonds can be fully
converted, such that they are fully redeemed on the date of conversion. Bonds
can also be issued as partially convertible, when a part of the bond is redeemed
and equity shares are issued in the pre-specified conversion ratio, and the
nonconvertible portion continues to remain as a bond.
MODIFYING THE PRINCIPAL REPAYMENT OF A BOND
Amortising Bonds
The structure of some bonds may be such that the principal is not
repaid at the end/maturity, but over the life of the bond. A bond, in
which payment made by the borrower over the life of the bond,
includes both interest and principal, is called an amortising bond.
Auto loans, consumer loans and home loans are examples of
amortising bonds. The maturity of the amortising bond refers only to
the last payment in the amortising schedule, because the principal is
repaid over time.
Bonds with Sinking Fund Provisions

In certain bond indentures, there is a provision that calls upon the

issuer to retire some amount of the outstanding bonds every year. This
is done either by buying some of the outstanding bonds in the market,
or as is more common, by creating a separate fund, which calls the
bonds on behalf of the issuer. Such provisions that enable retiring
bonds over their lives are called sinking fund provisions. In many
cases, the sinking fund is managed by trustees, who regularly retire
part of the outstanding bonds, usually at par.

Sinking funds also enable paying off bonds over their life, rather than
at maturity. One usual variant is applicability of the sinking fund
provision after few years of the issue of the bond, so that the funds are
available to the borrower for a minimum period, before redemption can
commence.
ASSET BACKED SECURITIES

Asset backed securities represent a class of fixed income securities, created out
of pooling together assets, and creating securities that represent participation in
the cash flows from the asset pool.
For example, select housing loans of a loan originator (say, a housing finance
company) can be pooled, and securities can be created, which represent a claim
on the repayments made by home loan borrowers. Such securities are called
mortgage–backed securities.
In the Indian context, these securities are known as structured obligations
(SO). Since the securities are created from a select pool of assets of the
originator, it is possible to ‘cherry-pick’ and create a pool whose asset quality is
better than that of the originator.
It is also common for structuring these instruments, with clear credit
enhancements, achieved either through guarantees, or through the creation of
exclusive preemptive access to cash flows through escrow accounts.
Assets with regular streams of cash flows are ideally suited for creating asset-
backed securities.
Why should one invest in fixed income securities?

Fixed Income securities offer a predictable stream of payments by way of

interest and repayment of principal at the maturity of the instrument.

The debt securities are issued by the eligible entities against the moneys
borrowed by them from the investors in these instruments. Therefore,
most debt securities 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.
Why should one invest in fixed income securities?

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.

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.

The prices of Debt securities display a lower average volatility as compared to

the prices of other financial securities and ensure the greater safety of
accompanying investments.

Debt securities enable wide-based and efficient portfolio diversification and thus
assist in portfolio risk-mitigation.
What are the advantages of investing in Government Securities (G-Secs)?

The Zero Default Risk of the G-Secs. offer one of the best reasons for
investments in G-secs so that it enjoys the greatest amount of security possible.

The other advantages of investing in G- Secs are:

Greater safety and lower volatility as compared to other financial instruments.
Higher leverage available in case of borrowings against G-Secs.
No TDS on interest payments
Tax exemption for interest earned on G-Secs.
Greater diversification opportunities
Adequate trading opportunities with continuing volatility expected in interest
rates the world over
MARKET STRUCTURE
What is the trading structure in the Wholesale Debt Market?

The Debt Markets in India and all around the world are dominated by
Government securities, which account for between 50 - 75% of the
trading volumes and the market capitalization in all markets.

Government securities (G-Secs) account for 70 - 75% of the

outstanding value of issued securities and 90-95% of the trading
volumes in the Indian Debt Markets.
State Government securities & Treasury Bills account for around 3-4 %
of the daily trading volumes.
The trading activity in the G-Sec. market is also very concentrated
currently (in terms of liquidity of the outstanding G-Secs.) with the top
10 liquid securities accounting for around 70% of the daily volumes.
Who regulates the fixed income markets?

As debt market trade both government and

corporate debt instruments, we have following
two regulators:

RBI : It regulates and also facilitates the

government bonds and other securities on
behalf of governments

SEBI: It regulates corporate bonds, both PSU

(Public sector undertaking) and private sector
What is the trading structure in the
Wholesale Debt Market?

The issue and trading of fixed income securities by each of

these entities are regulated by different bodies in India.
For eg: Government securities and issues by Banking
Institutions are regulated by the RBI.
The issue of non-government securities comprising basically
issues of Corporate Debt is regulated by SEBI.
What are the main features of G-Secs and T-Bills in India?

All G-Secs in India currently have a face value of Rs.100/- and

are issued by the RBI on behalf of the Government of India. All
G-Secs are normally coupon (Interest rate) bearing and have
semi-annual coupon or interest payments with a tenor of
between 5 to 30 years. This may change according to the
structure of the Instrument.

Eg: a 11.50% GOI 2022 security will carry a coupon

rate(Interest Rate) of 11.50% p.a. on a face value per unit of
Rs.100/- payable semi-annually and maturing in the year 2022.
What are the main features of G-Secs and T-Bills in India?

Treasury Bills are for short-term instruments issued by the RBI

for the Govt. for financing the temporary funding requirements
and are issued for maturities of 91 Days and 364 Days.
T-Bills have a face value of Rs.100 but have no coupon (no
interest payment). T-Bills are instead issued at a discount to the
face value (say @ Rs.95) and redeemed at par (Rs.100). The
difference of Rs. 5 (100 - 95) represents the return to the
investor obtained at the end of the maturity period.
State Government securities are also issued by RBI on behalf of
each of the state governments and are coupon-bearing bonds
with a face value of Rs.100 and a fixed tenor. They account for
3-4 % of the daily trading volumes.
What are the segments in the secondary debt market?

The segments in the secondary debt market based on the

characteristics of the investors and the structure of the market are:

Wholesale Debt Market(WDM) - where the investors are mostly Banks,

Financial Institutions, the RBI, Primary Dealers, Insurance companies,
MFs, Corporates and FIIs.

Retail Debt Market(RDM) involving participation by individual investors,

provident funds, pension funds, private trusts, NBFCs and other legal
entities in addition to the wholesale investor classes.
What is the structure of the Wholesale Debt Market?

The Debt Market is today in the nature of a

negotiated deal market where most of the deals take
place through telephones and are reported to the
Exchange for confirmation. It is therefore in the
nature of a wholesale market.
Who are the most prominent investors in the Wholesale Debt Market in India?

The Commercial Banks and the Financial Institutions are the most
prominent participants in the Wholesale Debt Market in India.
During the past few years, the investor base has been widened to
include Co-operative Banks, Investment Institutions, cash rich
corporates, Non-Banking Finance companies, Mutual Funds and high
net-worth individuals.
FIIs have also been permitted to invest 100% of their funds in the debt
market, which is a significant increase from the earlier limit of 30%.
The government also allowed in 1998-99 the FIIs to invest in T-bills
with a view towards broadbasing the investor base of the same.
What are the types of trades in the Wholesale Debt
Market?

There are normally two types of transactions, which are

executed in the Wholesale Debt Market :

1) An outright sale or purchase and

2) A Repo trade
What is a Repo trade and how is it different from a normal
buy or sell transaction?

An outright Buy or sell transaction is a one where there is no intended reversal of the trade
at the point of execution of the trade. The Buy or sell transaction is an independent trade
and is in no way connected with any other trade at the same or a later point of time.

A Ready Forward Trade (which is normally referred to as a Repo trade or a Repurchase

Agreement ) is a transaction where the said trade is intended to be reversed at a later point
of time at a rate which will include the interest component for the period between the two
opposite legs of the transactions.

So in such a transaction, one participant sells securities to other with an agreement to

purchase them back at a later date. The trade is called a Repo transaction from the point of
view of the seller and it is called a Reverse Repo transaction from point of view of the
buyer.

Repos therefore facilitate creation of liquidity by permitting the seller to avail of a specific
sum of money (the value of the repo trade) for a certain period in lieu of payment of
interest by way of the difference between the two prices of the two trades.

Repos and reverse repos are commonly used in the money markets as instruments of short-
term liquidity management and can also be termed as a collateralised lending and
borrowing mechanism. Banks and Financial Institutions usually enter into reverse repo
transactions to manage their reserve requirements or to manage liquidity.
The market participants in the debt market are:

1. Central Governments, raising money through bond issuances, to fund

budgetary deficits and other short and long term funding requirements.

2. Reserve Bank of India, as investment banker to the government, raises

funds for the government through bond and t-bill issues, and also
participates in the market through open- market operations, in the
course of conduct of monetary policy.
The market participants in the debt market are:

3. Primary dealers, who are market intermediaries appointed by the

Reserve Bank of India who underwrite and make market in government
securities, and have access to the call markets and repo markets for
funds.
4. State Governments, municipalities and local bodies, which issue
securities in the debt markets to fund their developmental projects, as
well as to finance their budgetary deficits.
5. Public sector units are 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.
6. Corporate treasuries 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 market.
The market participants in the debt market are:

7. Public sector financial institutions regularly 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.
8. Banks are the largest investors in the debt markets, particularly the
treasury bond and bill markets.
9. Mutual funds have emerged as another important player in the debt
markets, owing primarily to the growing number of bond funds that
have mobilised significant amounts from the investors.
The market participants in the debt market are:

10. Foreign Institutional Investors are permitted to invest in Dated

Government Securities and Treasury Bills within certain specified
limits.
11. Provident funds are large investors in the bond markets, as the
prudential regulations governing the deployment of the funds they
mobilise, mandate investments pre-dominantly in treasury and PSU
bonds.
Auction Mechanisms
Methods: (1) ‘Uniform price’ method or
(2) on ‘Multiple price’ method
Basis: (1) on either yield basis or
(2) price basis
Uniform Price Auctions (Dutch Auction)

The winning bids are the highest quoted

price or lowest quoted yield.

However, in a uniform price auction, all

successful bidders pay a uniform price,
which is usually the cut-off price or yield.
Discriminatory Price Auctions (French Auction)

The winning bids are the highest quoted

price or lowest quoted yield.

In the case of the discriminatory price

auction, all successful bidders pay the
actual price or the yield they bid for.
“winner’s curse”- (French Auction)
The discriminatory price auction, creates a “winner’s curse”
where a successful bidder is one who has priced his bid higher
than the cut-off, but will immediately suffer a loss in the
market, if the after-market price is closer to cut-off, rather than
his bid.

There is a loss in the secondary markets, even in a Dutch

auction, if the after-market price is lower than the cut-off.
Auction – On Yield basis
If successful bids are decided by filling up the notified amount from the
lowest bid upwards, such an auction is called a yield-based auction.
In such an auction, the name of the security is the cut-off yield. Such
auction creates a new security, every time an auction is completed.
For example, the G-sec 10.3% 2022 derives its name from the cut-off
yield at the auction, which in this case was 10.3%, which also becomes
the coupon payable on the bond.
A yield-based auction thus creates a new security, with a distinct
coupon rate, at the end of every auction.
The coupon payment and redemption dates are also unique for each
security depending on the deemed date of allotment for securities
auctioned.
Auction – On price basis
If successful bids are filled up in terms of prices that are bid by
participants from the highest price downward, such an auction is called
a price-based auction.
A price-based auction facilitates the re-issue of an existing security.
For example, in March 2017, RBI auctions the 11.43% 2026 security.
This is a G-sec, which had been earlier issued and trading in the
market. The auction was for an additional issue of this existing
security. The coupon rate and the dates of payment of coupons and
redemption are already known.
The additional issue increases the gross cash flows only.
 What are the different types of risks with regard to debt securities?

• Default Risk: This can be defined as the risk that an issuer of a bond may be unable to
make timely payment of interest or principal on a debt security or to otherwise comply with
the provisions of a bond indenture and is also referred to as credit risk.
• Interest Rate Risk: can be defined as the risk emerging from an adverse change in the
interest rate prevalent in the market so as to affect the yield on the existing instruments. A
good case would be an upswing in the prevailing interest rate scenario leading to a
situation where the investors' money is locked at lower rates whereas if he had waited and
invested in the changed interest rate scenario, he would have earned more.
• Reinvestment Rate Risk: can be defined as the probability of a fall in the interest rate
resulting in a lack of options to invest the interest received at regular intervals at higher
rates at comparable rates in the market.

The following are the risks associated with trading in debt securities:
• Counter Party Risk (credit): is the normal risk associated with any transaction and refers to
the failure or inability of the opposite party to the contract to deliver either the promised
security or the sale-value at the time of settlement.
• Price Risk: refers to the possibility of not being able to receive the expected price on any
order due to a adverse movement in the prices.
What are the different types of risks with regard to debt securities?

• Credit / Default risk

• Call Risk
• Exchange rate risk
• Liquidity risk
• Interest rate Risk
• Inflation risk
• Re-investment risk
• Downgrade risk
• Sovereign risk
What are the advantages of investing in Government Securities (G-Secs)

The Zero Default Risk of the G-Secs. offer one of the best reasons for
investments in G-secs so that it enjoys the greatest amount of security
possible.
The other advantages of investing in G- Secs are:
• Greater safety and lower volatility as compared to other financial
instruments.
• Variations possible in the structure of instruments like Index linked Bonds,
STRIPS
• Higher leverage available in case of borrowings against G-Secs.
• No TDS on interest payments
• Tax exemption for interest earned on G-Secs. up to Rs.3000/- over and
above the limit of Rs.12000/- under Section 80L (as amended in the latest
Budget).
• Greater diversification opportunities
• Adequate trading opportunities with continuing volatility expected in interest
rates the world over
CRIBS
Corporate Bond Reporting and
Integrated Clearing System (CBRICS)
platform is intended to enable members
to report their transactions in corporate
bonds.
What is RFQ in NSE?
Request for Quote' (RFQ) is a platform
for interaction amongst the market
participants who wish to negotiate
transactions amongst themselves.
Make-Whole call (MW or MWC)

In a make-whole call, the investor

receives a single payment for the NPV
of all future cash flows of the bond.
That typically includes the remaining
coupon payments associated with the
bond under the make-whole call
provision.