INVESTMENT IN FIXED INCOME GROUP

Group Members
Arnab Bose 06 Bhavik Shah 09 Charmi Vora 13 Mohit Tilwani 34 Tanya sangar - 62

Fixed Income

 Fixed income refers to any type of investment that is not equity, which obligates the borrower/issuer to make payments on a fixed schedule, even if the number of the payments may be variable.

The current financial screnario

Sub-Title

 The RBI raised the key policy rates (repo and reverse repo) by 50 basis points each to eight and seven percent respectively. The inflation rate has started showing signs of coming down and the economic data points show a negative impact of the existing high interest rates on consumer sentiment and industrial growth. The rate hike by the RBI will reduce the overall potential of equity-based instruments, especially the high beta and highly leveraged companies.

On the other hand, the potential of debt instruments will increase as their yields will go up due to the interest rate hardening. Sectors that are comparatively less-impacted by the RBI's interest rate hikes and provide potential investment opportunities for investors in the current market conditions.

WHERE CAN 1 INVEST?

Pharmaceuticals FMCG Banking Public Sector Telecom Bonds

WHAT IS A BOND?
A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals.

Types of bond market in India

Corporate Bond Market. Municipal Bond Market. Government and Agency Bond Market. Funding Bond Market. Mortgage Backed and Collateral Debt Obligation Bond Market.

Government bonds/securities
The Government securities comprise dated securities issued by the Government of India and state governments as also, treasury bills issued by the Government of India. Reserve Bank of India manages and services these securities through its public debt offices located in various places as an agent of the Government.

Treasury Bills
Treasury Bill is a negotiable debt obligation issued by a government. Treasury bills are considered to be shortterm, as the period of maturity is one year or less. They are exempt from local and state taxes. They are the safest form of marketable investment.

TYPES OF TREASURY BILLS

Amount. Auction.

AUCTIONS
TYPES OF T-BILLS DAY OF AUCTION DAY OF PAYMENT 91 DAYS WEDNESDAY FOLLOWING FRIDAY

182 DAYS

WEDNESDAY OF NON REPORTING WEEK

FOLLOWING FRIDAY

364 DAYS

WEDNESDAY OF REPORTING WEEK

FOLLOWING FRIDAY

Amounts
The minimum amount available is for Rs. 25,000 (US $579.72, as of 7 July, 2008). They are further available in denominations of Rs. 25,000. They are redeemed at par and are issued at a discounted rate. Treasury bills in India are issued under the Market Stabilization Scheme (MSS) as well.

Municipal Bond
Issued by local governments Started - 1997 $335 mn raised since 1997 Tamil Nadu and Karnataka - most promising states.

Types of municipal bond

General obligation bonds (GOs) Revenue bonds Conduit bonds Insured bonds Taxable bonds Original Issue Discount bonds Zero coupon bonds Pre-Refunded bonds Housing bonds Municipal Notes

Advantages
Tax exemptions. Credit ratings. Liquidity. Insurance.

First No Guarantee Municipal Bond

Issue Size Rs 100 crore. Rs75 crore privately placed with 13 banks and institutional investors. Rs25 crore by way of public issue. Purpose Part Finance water and Sewerage Projects.

 Interest 14% payable semi-annually. Redemption at the end of 6,7 and 8th year. Listed NSE Credit rating AA(SO).

Municipal Bond issue

Municipal Corporations(Amount in Crores of Rupees)
Municipal Corporation Bangalore Ahmedabad Nashik Ludhaina Nagpur Madurai Indore Hyderabad TNUDF TNUDF (Pooled) Issue Date 1997 1998 1999 1999 2001 2001 2001 2002 2001 2002 Maturity (Years) 7 7 7 10 7 15 7 8.5 5 15 Coupon (%) 13 14 14.75 13.5-14 13.43 12.25 11.50 7 11.85 9.2 Rating A-(SO) AA-(SO) AA-(SO) LAA(SO) LAA-(SO) LA+(SO) AA+(SO) LAA+(SO) Agency CRISIL CRISIL CRISIL ICRA ICRA ICRA CRISIL ICRA Amount 100 100 100 10 50 30 10 82.5 106 30 Guarantee Yes No No No No No Yes No No No

Corporate bonds
Corporate bonds have more credit risk than treasury notes and bonds, they will sell at higher yields. Corporate bond market in India grew from Rs 55,000 crore in 2000 to Rs 199,000 crore in 2010.

Types
Secured debt vs Unsecure debt Senior debt vs Subordinated debt

Average yield on Corporate bond