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What is the Debt Market?

The Debt market is the market where fixed income securities of different types and facilities are issued and traded. Therefore, credit markets are markets for fixed income securities issued by central and state governments, municipal corporations, government bodies, and commercial institutions like financial institutions, banks, public sector units, public limited companies, and structured finance instruments.

The debt market in India consists mainly of two categories - government securities or G-sek market which includes central government and state government securities and corporate bond market.

To finance its fiscal deficit, the Government seeks fixed income instruments and borrows money by issuing G-seks containing sovereign securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. 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.

Issuance of bonds increases the debt burden of the bond issuer as the contract interest payment should be paid to the bondholders. In the debt market, the bondholders do not acquire ownership in the business or make no claim for the future profits of the borrower. The sole obligation of the borrower is to repay the loan with interest.

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Advantages of investing in Government Securities (G-Secs)

Zero default risk of G-sec. Provide one of the best reasons for investing in G-secs so that it receives the largest amount of security possible. Other advantages of investing in G-secs are:

  • Create safety and lower volatility as compared to other financial instruments.
  • Changes possible in the structure of devices such as index-linked bonds, STRIPS
  • High returns available in case of borrowing against G-SECs.
  • Have No TDS on interest payments
  • Tax exemption for interest earned on G-secs. up to 3000 /- over and above the limit of Rs. 12000 under Section 80L. (as amended in the latest Budget).
  • Will Get Greater diversification opportunities
  • Adequate trading opportunities with worldwide expected sustained volatility in interest rates
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Pricing of a bond

Pricing of a bond is essentially the determination of yield on that loan instrument and the resultant absolute value. From an investor's point of view, it is important to understand how the yield (the same price) is fixed in the debt market. The yield of a bond in the markets is determined by the forces of demand and supply, as is the case in any market. In addition, the yield of a bond in the market also depends on many other factors and will fluctuate according to the changes:

  • Macroeconomic conditions, both domestic and relevant global ones.
  • General currency market position including currency supply situation in the economy.
  • Risk or risk on the situation. Interest rates prevailing in the market and rates of new issues.
  • Future Interest Rate Expectations.
  • Inflation is expected based on both domestic prices and global commodity prices like crude etc.
  • The credit quality of the issuer.

Top stock market broker in India suggest that bonds are considered less risky investments for at least two reasons. First, bond market returns are less volatile than the returns of the stock market. Secondly, should the company run into trouble, the bondholders are paid first before other expenses are paid.

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Attention Investors :

1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.

2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.

3. Pay 20% or "var + elm" whichever is higher as upfront margin of the transaction value to trade in cash market segment.

4. Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 dated August 31, 2020 and other guidelines issued from time to time in this regard.

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5. Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.

"Prevent Unauthorized transactions in your Trading/Demat Account. Update your mobile numbers/email IDs with your stock brokers/Depository Participant. Receive alerts/information of your transaction/all debit and other important transactions in your Trading/ Demat Account directly from Exchange/CDSL at the end of the day. Issued in the interest of investors."

"KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary."

"No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

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Aaditya Wealthon the National Franchise partner of AngelOne (Formally known as Angel Broking) , registered office at #4,5 first floor, BL Tower, station road, chang gate Beawar (Ajmer) -305901, Rajasthan India, Authorized Person ANJLI SAHU, Authorized Trade Name – AADITYA WEALTHON, Registration code- NSECM – AP039786891, NSEFO-APF039733341, NSECD – AP039786891, MCX-MCX/AP/10297, MCX-SX-AP2776, NCDEX regn no –70467, BSE registration no –AP0106120125965, Affiliated to stock broker AngelOne (Formally known as Angel Broking) – SEBI regn no – INB010996539, derivative no – inf010996539, Research Analyst SEBI Regn. No.: INH000000164,


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