Debt Market in India

Debt market refers to the financial market where investors buy and sell debt securities, mostly in the

form
of bonds. These markets are important source of funds, especially in a developing economy like India.
India debt market is one of the largest in Asia. Like all other countries, debt market in India is also
considered a useful substitute to banking channels for finance.

The most distinguishing feature of the debt instruments of Indian debt market is that the return
is fixed. This means, returns are almost risk-free. This fixed return on the bond is often termed
as the 'coupon rate' or the 'interest rate'. Therefore, the buyer (of bond) is giving the seller a loan at a
fixed interest rate, which equals to the coupon rate.

Classification of Indian Debt Market
Indian debt market can be classified into two categories:
Government Securities Market (G-Sec Market): It consists of central and state government securities. It
means that, loans are being taken by the central and state government. It is also the most dominant
category in the India debt market.
Bond Market: It consists of Financial Institutions bonds, Corporate bonds and debentures and Public
Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost and hence
remove uncertainty in financial costs.
Advantages
The biggest advantage of investing in Indian debt market is its assured returns. The returns that the
market offer is almost risk-free (though there is always certain amount of risks, however the trend says
that return is almost assured). Safer are the government securities. On the other hand, there are certain
amounts of risks in the corporate, FI and PSU debt instruments. However, investors can take help from
the credit rating agencies which rate those debt instruments. The interest in the instruments may vary
depending upon the ratings.
Another advantage of investing in India debt market is its high liquidity. Banks offer easy loans to the
investors against government securities.
Disadvantages
As there are several advantages of investing in India debt market, there are certain disadvantages as
well. As the returns here are risk free, those are not as high as the equities market at the same time. So,
at one hand you are getting assured returns, but on the other hand, you are getting less return at the
same time.
Retail participation is also very less here, though increased recently. There are also some issues of
liquidity and price discovery as the retail debt market is not yet quite well developed.
Debt Instruments
There are various types of debt instruments available that one can find in Indian debt market.
Government Securities
It is the Reserve Bank of India that issues Government Securities or G-Secs on behalf of the Government
of India. These securities have a maturity period of 1 to 30 years. G-Secs offer fixed interest rate, where
interests are payable semi-annually. For shorter term, there are Treasury Bills or T-Bills, which are issued
by the RBI for 91 days, 182 days and 364 days.
Corporate Bonds
These bonds come from PSUs and private corporations and are offered for an extensive range of tenures
up to 15 years. There are also some perpetual bonds. Comparing to G-Secs, corporate bonds carry
higher risks, which depend upon the corporation, the industry where the corporation is currently operating,
the current market conditions, and the rating of the corporation. However, these bonds also give higher
returns than the G-Secs.
Certificate of Deposit
These are negotiable money market instruments. Certificate of Deposits (CDs), which usually offer higher
returns than Bank term deposits, are issued in demat form and also as a Usance Promissory Notes.
There are several institutions that can issue CDs. Banks can offer CDs which have maturity between 7
days and 1 year. CDs from financial institutions have maturity between 1 and 3 years. There are some
agencies like ICRA, FITCH, CARE, CRISIL etc. that offer ratings of CDs. CDs are available in the
denominations of Rs. 1 Lac and in multiple of that.
Commercial Papers
There are short term securities with maturity of 7 to 365 days. CPs are issued by corporate entities at a
discount to face value.

Debt Market in India

Uploaded by

Copyright:

Available Formats

Debt Market in India

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Debt Market in India

Uploaded by

Copyright:

Available Formats

Debt market refers to the financial market where investors buy and sell debt securities, mostly in the

Classification of Indian Debt Market

Indian debt market can be classified into two categories:

You might also like