Debt instruments

Money Markets

1. Debt Instruments Presented by Arya Basu Roll No-17 EXPGDM 2018 - 19

2. Debt Instrument Debt instrument is a part of Financial market A debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract Debt instruments can be either long-term obligations or short-term obligations Short term debt instrument is an obligation that is expected to be repaid within one calendar year Long term debt instruments are obligations due on one year or more, normally repaid through periodic installment payments

3. Different types of Debt instruments Bonds Certificates of Deposits Commercial Papers Debentures G-Secs (Government Securities) National Saving Certificate

4. Bonds The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Thus a bond is a form of loan : the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. bondholders have a creditor stake in the company (that is, they are lenders). Being a creditor, bondholders have priority over stockholders. Bonds usually have a defined term, or maturity, after which the bond is redeemed.

5. Certificate of Deposit A certificate of deposit (CD) is a savings certificate with a fixed maturity date specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. A CD restricts access to the funds until the maturity date of the investment. CDs are generally issued by commercial banks. A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. A CD is typically issued electronically and may automatically renew upon the maturity of the original CD. When the CD matures, the entire amount of principal, as well as interest earned, is available for withdrawal. There are two types of CD – Small and Large CDs

6. Commercial Paper A commercial paper in India is the monetary instrument issued in the form of promissory note. It acts as the debt instrument to be used by large corporate companies for borrowing short-term monetary funds in the money market. The commercial paper has become effective instrument for these corporate companies to avail the short-term funds from the money market within shortest possible time limit by avoiding the hassles of direct negotiation with the commercial banks for availing the short-term loans.

7. Debentures A Debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond to secure capital. Types of Debentures 1 Redeemable and irredeemable debentures 2 Convertible and Non-Convertible Debentures. 3 Fully and Partly Convertible Debentures. 4 Secured (Mortgage) and Unsecured (Naked) Debentures. 5 First Mortgaged and Second Mortgaged Debentures. 6 Registered Unregistered Debentures (Bearer) Debenture.

8. G-Secs (Government Securities) A government security is a bond issued by a government authority with a promise of repayment upon maturity. Government securities such as savings bonds, treasury bills and notes also promise periodic coupon or interest payments. There are many types of government securities issued by RBI: Dated securities with a fixed maturity date Zero coupon bonds Partly paid stock Floating rate bonds Capital indexed bonds

9. National Saving Certificate National Savings Certificates , popularly known as NSC, is an Indian Government Savings Bond, primarily used for small savings and income tax saving investments in India. It is part of the postal savings system of Indian Postal Service (India Post). These can be purchased from any Post Office in India by an adult (either in his/her own name or on behalf of a minor), a minor, a trust, and two adults jointly. These are issued for five and ten year maturity and can be pledged to banks as collateral for availing loans. The holder gets the tax benefit under Section 80C of Income Tax Act, 1961