It is the yield to maturity, a measure which gives the net return on an investment after factoring in price premiums and the maturity date of the bond
The whole sale debt market is only for inter-bank and institutional participants and the lot size is a minimum of Rs.5 crs. The retail market comprises of smaller lots of below Rs.5 crs and can be purchased and sold by individuals
The central bank of India manages the circulation of money supply in a manner such that the interest rates are controlled. Usually the committee meets four times a year for reviewing the economy and make sure that the growth is as per the projections given by the government
The bonds are now compulsorily in demat (electronic mode) only. The NSDL(national securities depository Ltd) and CDSL( central depository services India Ltd) are the central government and BSE entities respectively which ensure safe custody through the various depository participants licensed by the regulator, SEBI
Issuers of the bonds appoint Registrar’s and transfer agent who process the interest and maturity payments . In case of Government bonds and State loans, NSDL handles the processing. For the other bonds, the registrar appointed does the processing
The 10-year GOI bond is designated every year which is the reference point to indicate the interest rates at any point of time. It is similar to the Sensex/Nifty of the Equity market
The investor needs to have an active demat account to hold the bond units. As the prices fluctuate daily, the quotes are updated. Once the particular bond is selected, a contract note is exchanged between the broker and customer. The exchange of bonds and funds is done either directly as off-market or through the settlement platform managed by NSE & BSE( NSCCL and ICCL)
For the government securities/bonds the minimum investment is Rs.10,000/- and for the corporate bonds the minimum investment is Rs.1 lacs, Rs.5 lacs or Rs.10 lacs depending on the issuer of the bond
Yes, the vibrant secondary market allows the sale at the prevailing interest rates at any point of time
The coupon bearing bond is fixed and the interest is paid irrespective of the interest rate movements in the market
All taxable bonds attract tax and need to be declared in the individual’s tax returns. However, the tax-free bonds do not attract tax. There is no Tax deducted at source for the bonds listed on the exchanges and in demat mode
The bonds can be sold and transferred in the off-market or through the NSE/BSE platforms based on the liquidity available for the particular bond
The yield and price are inversely related, which means when the yield moves up the price drops. Based on the prevailing 10 –year benchmark yield the spreads or margins are marked
There are 5 major credit rating agencies: CRISIL, ICRA, CARE, Brickwork ratings, India rating and Research. The bonds are reviewed for ratings and changes if any are announced based on the financial performance of the issuer
Every year the investor needs to get the investment portfolio reviewed and mark it to market
Earlier, the bonds could be opted for either physical or electronic. Now it has been made compulsory to issue only in demat( electronic mode)
Fixed interest rate or coupon bonds also have maturity date and early redemption dates, which is called Put/call dates. The PUT is exercised by the depositor while the CALL is exercised by the Issuer of the bond. In some bonds, interest is paid on cumulative basis, which are called Zero coupon bonds or deep discount bonds. In these bonds, the face value of the bond- E.g 1,00,000 will have a pre-fixed maturity value of Rs.5,00,000 after 7 years
The base rate is fixed and over which the floating component is announced which can vary based on the interest rates as announced in the Monetary policy of RBI. E.g 7.15% RBI savings bonds, 6.85% the base rate and the variable rate is 0.30% for the tenor of 7 years.
For the central and state government bonds, a portion of reserved for retail participation.. The investor can bid through the bank custodian at cut-off or a price based auction
They are issued by Reserve bank of India and are very short term instruments having a maturity date of 91, 182 or 364 days. They are usually traded between the institutional players and convenient in Mumbai due to settlement cycles being low. They are zero coupon securities
Most of the NBFC’s and financier’s provide this facility and is based on the ratings of the underlying bonds/securities and the residual maturity. They also decide the margin based on the their internal credit policies.