Quotes of listed Bonds

MARKET TRENDS



REGISTER

INTRODUCTION

Debt Market

• 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.


BONDS

• 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

• 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.

CHARACTERISTICS

Face Value

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.

Maturity Date

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

Principle Value

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.

Coupon Rate

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.

TYPES OF FIXED INCOME PRODUCTS

Perpetual Bonds

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.

Fixed Maturity Bonds/ Debentures

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.

Tax-Free Bonds

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.

Capital Gain Bonds

These bonds are eligible for investment of capital gains accrued from the sale of the property. The capital gain invested in these bonds become tax-free. They carry a fixed coupon and have a maturity of 3-5 years

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Sovereign Bonds

These Bonds are issued by Reserve Bank of India on behalf of Government of India with a fixed maturity of 6 years.


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Corporate FDs

These are the securities issued by corporates to inviting deposits from the public. These FDs have a fixed maturity and fixed coupon.


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WHY INVEST IN FIXED INCOME PRODUCTS

☛  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.

PARTICIPANTS

Central Governments

Raising money through bond issuances, to fund budgetary deficits and other short and long term funding requirements.

Foreign Institutional Investors

FIIs can invest in Government Securities upto US $ 5 billion and in Corporate Debt upto US $ 15 billion.

State Governments

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.

Primary Dealers

Market intermediaries appointed by RBI to underwrite and make market in government securities have access to the call markets and repo markets for funds.

Public Sector Units

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.

Public Sector Financial Institutions

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.

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 debt market.

Provident Funds

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.

Charitable Institutions, Trusts and Societies

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.

Reserve Bank of India

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.

Mutual Funds

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.

Banks

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.

ISSUER OF BONDS & INSTRUMENTS

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

CREDIT RATING

Credit Rating - Assessing the Credit Quality

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.

Credit Rating - Assessing the Credit Quality

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.

Instruments by Credit Quality- Maturity > 1 Years (Bonds)

AAA: Highest Safety
AA: High Safety
A: Adequate Safety

Instruments by Credit Quality- Maturity < 1 Years (CPs, CDs and Bonds up to 1 year maturity)

A1: Highest Safety
A2: High Safety
A3: Adequate Safety

SEBI Regn. No.: INM000012306 | NSE CM: INB 230637836 | NSE F&O: INF 230637836 | NSE CDS: INE 230637836 |
BSE CM: INB 011110237 | BSE F&O: INF 011110237 | MCX-SX: INE 260637836 USE: INE 270637833 | CDSL: a) 120 33500 |
b) 12033503 (Delhi) | NSDL: a) IN 301477 | b) IN 301688 (Delhi) | PMS: INP 000000985 | AMFI: ARN -0186

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