BOND MARKETS

INDIA
WHAT ARE BONDS?

• Bonds are simple way to borrow money.

• Bonds are used by companies, municipalities, states and central governments to raise
money to finance a variety of projects and activities.
• Owners of bonds are debt holders or creditors.
BOND MARKET

Bond market is like stock market where bonds are bought and sold before expiry and their
prices changes frequently.
Types of Bond Market
• Primary Market
• Secondary Market
TYPES OF BOND MARKETS

• Primary Market
Primary market is where securities are created.

• Secondary Market
Securities that have already been sold in the primary market are then bought and sold at
later dates.
TYPES OF BONDS IN INDIA

• Zero-coupon Bond
• Government securities Bond
• Corporate Bond Fund
• Convertible Bond
• Inflation-Linked Bonds
• Sovereign Gold Bond
• RBI Bonds
IMPORTANT ELEMENTS IN BOND MARKET

• Coupon rate – Rate of interest paid by bond issuers on the bond face value.
• Maturity period – Years of maturity issued.
• Face value – Price of bond when first issued(bond price).
• at Par – Bonds sold on face value.
• at Premium – Bonds sold on a amount greater than bonds face value.
• at Discount – Bonds sold on market price below the face value.
Let’s take an example to understand bond markets:

ABC Company required funds for their new project so they have decided to issue bonds to collect funds.
Coupon rate – 8%
Maturity period – 7 years
Face value(Principal) – Rs.1000

Dr. Lalith has bought 10 bonds i.e. Face value*No. of bonds (1000*10)

So, he has invested 10,000 in the ABC company and he will be getting 8% return every year i.e. Face
value*8/100=80 (per bond) until maturity period end i.e. 7years

Once the maturity period end, the ABC company will return its face value.
Suppose Dr. Lalith required money for his needs, so he will decide to sell the bonds after 3years.
Current coupon rate – 10% (After 3years)
Maturity period – 4years

As we know, coupon rate now is 10% but coupon rate when Dr. Lalith bought was 8%. Why will
someone buy bond at lower interest rate, when he is able to get more? To recover from this Dr. Lalith
should sell bonds at discount.

If the coupon rate decreases after 3years and the current coupon rate – 6% and Dr. Lalith decided to
sell the bond then he will sell the bond at premium.
REGULATORS IN BOND MARKET

• RBI (Reserve Bank of India)

RBI regulates and facilitates the government bonds and other securities on behalf of
governments.
• SEBI (Securities and Exchange Board of India)
SEBI regulates corporate bonds, both PSU(Public sector undertaking) and private sector.
WHO ISSUES BONDS?

Bonds are issued by Default Risk

• Governments VERY LOW

• Municipalities LOW
(state and local government)

MODERATE
• Corporations

Higher the default risk, the more the bond must pay to attract investors.
GOVERNMENT OR CORPORATE BONDS?

• There are wide range of bonds offered by the government and companies exchange for
predetermined interest.
• Government bonds are for those who are looking for lower-risk bonds to invest in.
• Corporate bonds offer higher interest rate to bondholder but higher return comes with
higher risk.
• Investors should do their research and select a bond to invest in to fulfill their financial
criteria and suits their risk tolerance.
THANK
YOU

By
Harikka Kola(AP19211010040)
Pranjal Parwal(AP19211010015)
Raga Chandralekha(AP19211010051)