DEBT MARKET

INSTRUMENTS
IN INDIA
Presented by:

Krishna 02

Anupam 07

Joy 11
 Definition
Debt instruments are contracts in which one
party lends money to another on pre-
determined terms with regard to rate of
interest to be paid by the borrower to the
lender, the periodicity of such interest
payment, and the repayment of the principal
amount borrowed.
 What they call…

• Indian securities markets: bond (issued by

Central/ State governments or PSUs)

• Private corporate sector: debentures

 Regulatory bodies

• RBI

• SEBI

• FIMMDA
Market Segments and Products in
Debt market
 Financial Engineering

It refers to the development and

implementation of innovative financial
instruments and process and the formulation
of creative solutions to problems in financing.
 Factors in Financial Engineering
1. Tax advantage
2. Reduces transaction cost
3. Risk reallocation
4. Increase liquidity
5. Level and volatility of interest rates
6. Level and volatility of prices
7. Accounting benefits
8. Technological development and other factors.
 Different types of bonds

• Premium Bonds
• Convertible Bonds
• Zero Interest Bonds
• Mortgage Bonds
• Investment Bonds
 Different types of bonds
(contd..)

• High yield bonds

• Fixed Income Bonds
• Deep Discount Bonds
• Zero Coupon Convertible Bonds
 Different types of bonds
(contd..)

• Coupon Striping (Strips)

• Debt for equity swap
• Mezzanine debt
• Floating rate bonds
 Other Hybrid debt instruments

• Multi option secured redeemable

convertible debentures
• Callable bonds
• Option tender bonds
• Guaranteed debentures
 Other Hybrid debt instruments
(contd..)

• Indexed Bonds
• Inflation adjusted bonds
• Credit wrapping
Money market instruments
 Treasury Bills (T-Bills)

There are three types of T-bills

1. 91-day
2.182-day
3. 364-day
 CALL MONEY MARKETS

• Refers to the market for short term funds

• Overnight basis: Call money market

• For the period of 2 days to 14 days: Notice

money market
 Commercial Paper (CPs)
• Short term, unsecured, negotiable promissory
notes with fixed maturity
• Issued by rated corporate
• Issued at a discount on face value.
• In denominations of Rs. 5lakh or multiples
• maturities between a minimum of 7 days and
a maximum up to one year
 Certificate of Deposit (CDs)
• Short term deposit instruments
• Issued by banks and financial institutions to raise
large sum of money
• Issued at a discount to the face value
• Denominations of Rs. 1lakh or multiples
• Maturities between a minimum of 7 days and a
maximum up to one year
• Rates are usually higher than the term deposit
rates, due to the low transactions costs
 Repos
• Collateralized borrowing and lending
• Sold temporarily promise to buy back at a
fixed future Date & fixed price
• In reverse repos securities are purchased in a
temporary purchase with a promise to sell it
back
• When one is doing a repo, it is reverse repo
for the other party.
Secondary market for debt
instruments
 Wholesale Debt Market

• WDM trading market is known as NEAT

• Trading wide range of securities like all

mentioned earlier
  
WDM Participant wise Turnover for
July 2010
Participants Shares (in %)
Indian Banks 17.74

Foreign Banks 23.7

Trading Members 50.61

(Corporate)
Primary Dealers 5.03

Financial Institution 1.11

MFs 1.81

Total 100
Market Capitalisation as on July30, 2010
Security Type Market Capitalisation (in % of total
Rs. Mn)

Govt Securities 20044516.11 61.17

PSU Bonds 1829048.63 5.58

State Loans 5598098.05 17.08

Treasury Bills 1148502.74 3.51

Local Bodies 26271.92 0.08

FIs 876328.33 2.67

Bank Bonds 1736173.65 5.30

Corporate Bonds 1508400.42 4.61

Total 32767339.85 100.00

 Retail Debt Market

• Introduced to encourage all classes of

investors
• Participants: Retail investors
• Trading in existing capital market segment
• RETDEBT Market facility is available on the
NEAT system like WDM
 Sources
• www.nseindia.com
• www.bse.com
• www.investopedia.com
• www.wikipedia.com
• http://sawaal.ibibo.com/
• http://www.nse-
india.com/content/ncfm/FIMMDA.pdf
 Sources (contd..)

• Debt Markets by Sandeep Gupta: Sachin

Bhadarkar

• http://www.nse-
india.com/content/debt/debtup.pdf
Thank You