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Debt market 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 Glenn 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 ventures 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, Fl and US debt instruments.
However, investors can take help from the redid 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 liquidly. Banks offer easy loans to the investors against government securities. Disadvantages 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-Sees on behalf of the Government of India. These securities have a maturity period of 1 to 30 years. G-Sees 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 RIB for 91 says, 182 days and 364 days. Corporate Bonds These bonds come from Us 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-Sees, 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-Sees.