You are on page 1of 12

Bond

The opening up of the financial market at present has influenced several foreign investors holding up to 30% of the financial in form of fixed income to invest in the bond market in India. A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations and many other types of institutions sell bonds is a promise to repay the principal along with interest (coupons) on a specified date (maturity). A bond is a part of fixed income investments Its a promise to repay a sum of money at a certain interest rate and over a certain period of time.

The limit in government bonds has been in creased by $5billion to $ 20


billion in June 2012.

History of bond market


The bond market (also known as the credit, or fixed income market) is a financial market where participants can issue new debt, known as the primary market , or buy and sell debt securities, known as the Secondary market , usually in the form of bonds. The primary goal of the bond market is to provide a mechanism for long term funding of public and private expenditures. The "bond market" usually refer to the government bond market, because of its size, liquidity, relative lack of credit risk and, therefore, sensitivity to interest rates .

Who issues the bond ?


Government of India and other sovereign bodies.

Banks and Development Financial Institutions


PSUs

Private sector companies


Government or quasi government owned non corporate entities

Price of the bond


The price of a bond is a function of prevailing interest rates. As rates goes up, the price of the bond goes down, because particular bond becomes less attractive or pay less interest and vice versa.

The price also fluctuates in response to the risk perceived for


the debt of particular organization.

Who buys the bonds ?


People who are not want to take a risk by in vesting in shares and mutual fund units buy the bonds. Those who want a steady stream of cash flow subscribe to the bonds and they pay regular interest . Some bonds also provide tax benefit to the subscribers. Ex:Infrastructure development bonds. Apart from individual corporate bodies ,FII, Mutual funds, trust, also invest in bonds to earn the regular interest from a relatively safe investment. Bonds are issued and sold to the public for funds.

Principal Features of Bond


Maturity Coupon Principal

Features of the bond : Maturity of bond refers to the date on which the bond matures, or the date on which the borrower has agreed to repay the principal amount to the leader. Coupon rate is the rate at which interest is paid , and is usually represented as a percentage of the par value of a bond.
Principal is the amount that has been borrowed, and is also called the par value or face value of the bond.

Types of Bonds
Government bonds Convertible bonds Corporate bonds Zero coupon bond Foreign currency bonds PSU bonds Bond on Tap Various schemes of bond offered by industry

Regulatory framework
SEBI Act,1992 The companies act,1956 The securities contracts act,1956 The deposit act,1996

Bond Market in India


The wholesale debt market of national stock exchange provides an effective platform for trading in fixed income securities in India. The highest recorded WDM trading volume of Rs.13912 crore was registered on 25th of August 2003.