​GOLD ETF -- A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price.

They are passive

investment instruments that are based on gold prices and invest in gold bullion.In short, Gold ETFs are units representing physical
gold which may be in paper or dematerialised form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of
very high purity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.Gold ETFs are listed
and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd. (BSE) like a stock of any company.
Gold ETFs trade on the cash segment of BSE & NSE, like any other company stock, and can be bought and sold continuously at
market prices.Buying Gold ETFs means you are purchasing gold in an electronic form. You can buy and sell gold ETFs just as you
would trade in stocks. When you actually redeem Gold ETF, you don’t get physical gold, but receive the cash equivalent. Trading
of gold ETFs takes place through a dematerialised account (Demat) and a broker, which makes it an extremely convenient way of
electronically investing in gold.Because of its direct gold pricing, there is a complete transparency on the holdings of a Gold ETF.
Further due to its unique structure and creation mechanism, the ETFs have much lower expenses as compared to physical gold
investments.

FEATURES & BENEFITS OF GOLD ETFS

A. Flexibility​--Gold ETFs can be purchased online and placed in your Demat account. The asset management company (AMC) is
responsible for trading them on a stock exchange. Meaning, you can enter/exit whenever required. Even in the Demat format, gold
ETFs behave the same as physical gold.

B. Liquidity -- Gold ETFs offer high liquidity as they can be traded in the stock exchange during a trading session at the prevailing
price. Also, the transactional expenses (broker fee and govt duty) is less than that of physical gold.
C. Smaller denomination -- Approaching a retailer will need a large amount of money to purchase gold. However, in the case of
gold ETFs, you have the advantage to decide the quantum you wish to buy and sell.
D. Ease of participation in the gold market -- Withgold ETFs, investors acquire exposure to the gold market – a transparent,
profitable and safe platform. Also, they come with significant liquidity as gold can be traded instantly without any hassle.
E. Easy to hold for long -- Gold ETFs do not levy wealth tax on Gold ETFs as opposed to physical gold. Storage (in demat account)
and safety are no issues either. Hence, you can hold on to your ETFs for as long as you want.
F. Tax-efficiency -- They offer a tax-friendly means to hold gold as the returns generated from Gold ETFs are subject to long-term
capital gains tax. However, there will be no additional burden of sales tax, VAT, or wealth tax.
G. Use of exchange platform (NSE) -- Gold ETF investors can use the stock exchange platform – National Stock Exchange (NSE)
– to keep transactions and trade transparently.
H. Ease of transaction -- Aside from listing and trading on the stock exchange, you can also use it as security for secured loans.
Transactions are quicker and seamless with zero entry and exit load.
I. Cost-effective -- Golf ETFs do not attract making charges like physical gold in the form of ornaments or bars. You can purchase it
at international rates. Hence, there will be no mark-up at all.
J. Risk factors -- Like any equity fund, the NAV or Net Asset Value of a gold ETF can go up or down as per the market trends.
Similarly, the extra expenses like the fund manager’s fee and others can impact the returns.
DEBT FUND -- Debt funds invest in securities which generate fixed income like treasury bills, corporate bonds, commercial papers,
government securities, and many other money market instruments. All these instruments have a pre-decided maturity date and
interest rate that the buyer can earn on maturity – hence the name fixed-income securities. The returns are usually not affected by
fluctuations in the market. Therefore, debt securities are considered to be low-risk investment options.

HOW DO DEBT FUNDS WORK --- ​Every debt security has a credit rating which allows investors to understand the possibility of
default by the debt issuer in disbursing the principal and interest. Debt fund managers use these ratings to select high-quality debt
instruments. A higher rating implies that the issuer is less likely to default.
FEATURES AND BENEFITS OF A DEBT FUND​
1. Immune from market volatility: Unlike equity mutual funds, a debt mutual fund is not subject to market conditions. Investments
are made in securities with a fixed maturity period and a rate of interest.
2. S​​tabilise your portfolio: Since the risk associated with debt instruments is lower than equity instruments, these schemes provide
stability to your portfolio.
3. Great for new investors: New investors usually start with a low-risk appetite. Debt mutual funds serve as a great avenue of

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investment for such investors. There is steady returns without the fear of losing it all due to markets crashing.
4. High liquidity: Investment in these funds can be good way to invest surplus cash to build an emergency reserve. If you are in
need of urgent liquidity, you can always redeem the investment.
5. Helps to achieve investment goals: Debt funds have a fixed maturity period and offer low but steady returns. If you have a short
term investment objective for building a corpus for an upcoming expense, debt mutual fund is a great option.
TYPES OF DEBT FUNDS
1. Liquid & Money Market Funds: As the name suggests, the investment is made in highly liquid money market instruments and
debt securities. The tenure of such instruments is usually short and can be held for just one day also. Examples of such
instruments include Treasury Bills, Commercial Paper (CP), Certificates Of Deposit (CD) and Collateralized Lending & Borrowing
Obligations, etc. The primary aim of these funds is to earn money market rates. It is a popular investment avenue for investors who
want to park their surplus cash for a short period.
2. Income funds: These debt mutual funds primarily invest in an array of debt instruments of various maturities & issuers. The
investment is usually done in instruments that have medium to long-term maturities. Income funds are suited for investors who
have a higher risk appetite and longer investment horizon.
3. Short-Term funds: These debt funds primarily invest in debt instruments which have shorter maturity or duration. The usual
maturity period is up to 3 years. These funds generate good returns when the short-term interest rates are high. The popular
instruments in this category include debt and money market instruments and government securities. The investment horizon of
these funds is longer compared to liquid funds but shorter than medium-term income funds. These funds are best suited for
investors with a low to moderate risk appetite and an investment horizon of 9 to 12 months.

4. Floating Rate funds (FRF): As the name suggests, these funds primarily invest instruments that offer a floating interest rate. The
primary objective of the fund is to minimize the volatility of investment returns. Floating rate securities are linked to a benchmark
rate for debt instruments such as MIBOR. The interest rate is reset periodically based on the interest rate movement. Accordingly,
the returns vary.
DEBT FUNDS INTEREST RATE RISK---Interest rate movement poses a risk to debt MF investors. Interest rates typically rise
when the economy is growing, and fall during economic downturns. Bond prices and interest rates are inversely related. When
interest rates rise bond prices fall and vice versa.Usually, longer the maturity greater the degree of price volatility. Interest rate risk
is present in all debt funds but the degree could vary. Gilt funds with longer maturity carry higher interest rate while it is negligible.
CREDIT RISK (DEFAULT RISK):The chances that a borrower might not repay the interest or principle on the committed date is
considered as credit risk or default risk. Credit risk is measured by “Credit ratings”. Credit rating agencies like CRISIL, ICRA, CARE
etc. rate the issuer of the bond on their ability to repay by assessing their overall financial health.As credit risk increases, the
expectation on return also goes up. If a specific debt fund claims to generate very high returns, the first thing that should be
checked is the credit risk of the portfolio.Credit rating can change over a period of time. The performance of companies is
measured and the risk assessment is done at periodic intervals. The risk that a fund manager is worried about is not the risk of
default but the possible downgrade in credit rating of the debt paper. If a debt paper gets downgraded, the market price of such
instrument also comes down which affects the portfolio directly. On the other hand, if the credit rate gets upgraded the fund would
be benefited by increase in its fund value.

DEBT INSTRUMENTS PRICING

DEBT INSTRUMENT -- A debt instrument is a tool an entity can utilize to raise capital. It is a documented, binding obligation that
provides funds to an entity in return for a promise from the entity to repay a lender or investor in accordance with terms of a
contract. Debt instrument contracts include detailed provisions on the deal such as collateral involved, the rate of interest, the
schedule for interest payments, and the timeframe to maturity if applicable.

KEY TAKEAWAYS --
1. Any type of instrument primarily classified as debt can be considered a debt instrument.

2. A debt instrument is a tool an entity can utilize to raise capital.

3. Businesses have flexibility in the debt instruments they use and also how they choose to structure them.

FOUR MAJOR TYPES OF INSTRUMENTS

1. A discount bond makes only one payment, its face value on its maturity or redemption date, so its price is easily calculated using
the present value formula. If the interest rate is 6 percent, the price of a discount bond with a $1,000 face value due in exactly a
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year would be $943.40 (1000/1.06). If the interest rate is 12 percent, the same discount bond’s price would be only $892.86
(1000/1.12). If the bond is due in two years at 12 percent, its price would be $797.19 (1000/(1.122), and so forth.
2. A simple loan is the name for a loan where the borrower repays the principal and interest at the end of the loan. Use the future
value formula to calculate the sum due upon maturity. For example, a simple loan of $1,000 for one year at 3.5 percent would
require the borrower to repay $1,035.00 (1000× 1.035), while a simple loan at the same rate for two years would require a payment
of $1,071.23 (1000 × 1.0352). (Note that the correct answer is not just $35 doubled due to the effects of compounding or
capitalizing the interest due at the end of the first year.)

3. A fixed-payment loan (aka a fully amortized loan) is one in which the borrower periodically (for example, weekly, bimonthly,
monthly, quarterly, annually, etc.) repays a portion of the principal along with the interest. With such loans, which include most auto
loans and home mortgages, all payments are equal. There is no big balloon or principal payment at the end because the principal
shrinks, slowly at first but more rapidly as the final payment grows nearer.

YIELD TO MATURITY (YTM)​ -- ​Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it
matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate. In other words, it is the internal
rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity, with all payments made as scheduled
and reinvested at the same rate.Yield to maturity is also referred to as "book yield" or "redemption yield."Yield to maturity is similar
to current yield, which divides annual cash inflows from a bond by the market price of that bond to determine how much money one
would make by buying a bond and holding it for one year. Yet, unlike current yield, YTM accounts for the present value of a bond's
future coupon payments. In other words, it factors in the time value of money, whereas a simple current yield calculation does not.
As such, it is often considered a more thorough means of calculating the return from a bond.The YTM of a discount bond that does
not pay a coupon is a good starting place in order to understand some of the more complex issues with coupon bonds.Because
yield to maturity is the interest rate an investor would earn by reinvesting every coupon payment from the bond at a constant
interest rate until the bond's maturity date, the present value of all the future cash flows equals the bond's market price. An investor
knows the current bond price, its coupon payments, and its maturity value, but the discount rate cannot be calculated directly.
Calculations of yield to maturity (YTM) assume that all coupon payments are reinvested at the same rate as the bond's current
yield and take into account the bond's current market price, par value, coupon interest rate, and term to maturity. The YTM is
merely a snapshot of the return on a bond because coupon payments cannot always be reinvested at the same interest rate. As
interest rates rise, the YTM will increase; as interest rates fall, the YTM will decrease.The complex process of determining yield to
maturity means it is often difficult to calculate a precise YTM value. Instead, one can approximate YTM by using a bond yield table,
financial calculator, or online yield to maturity calculator.Although yield to maturity represents an annualized rate of return on a
bond, coupon payments are usually made on a semiannual basis, so YTM is calculated on a six-month basis as well. When
calculating semiannual payments the formulas mentioned previously would need to be slightly modified to calculate the YTM
correctly.
INTEREST RATE & BOND PRICE

Interest Rate -- When you borrow money from someone, the lender charges you a fee for the amount and time you borrow. This
fee expressed as a percentage of the principal amount borrowed, is the Interest Rate usually specified for a year.
Bond Price -- Bonds have a par value (face value). When you purchase a bond, depending upon prevailing interest rates, you can
end up paying either more or less than the par value. Prices are also affected by market interest rates.The past performance of
bonds during recessions indicates that as interest rates go down, bond prices go up. However, as bond prices go up, their yields
go down (if purchased at the higher price).1​ These relationships lead investors to look for other methods to create a profit on
investments or hedge the inherent risks in their portfolios.
Relationship between Bond Price & Interest Rate

Bonds have an inverse relationship to interest rates. When the cost of borrowing money rises, bond prices usually fall, and vice-
versa.At first glance, the negative correlation between interest rates and bond prices seems somewhat illogical. However, upon
closer examination, it actually begins to make good sense.

KEY TAKEAWAYS
Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond.
Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in
its price.
Zero-coupon bonds provide a clear example of how this mechanism works in practice.

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DEBT MUTUAL FUND SCHEMES​--- A debt fund is a Mutual Fund scheme that invests in fixed income instruments, such as
Corporate and Government Bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation.
Debt funds are also referred to as Fixed Income Funds or Bond Funds.A few major advantages of investing in debt funds are low
cost structure, relatively stable returns, relatively high liquidity and reasonable safety.Debt funds are ideal for investors who aim for
regular income, but are risk-averse. Debt funds are less volatile and, hence, are less risky than equity funds. If you have been
saving in traditional fixed income products like Bank Deposits, and looking for steady returns with low volatility, debt Mutual Funds
could be a better option, as they help you achieve your financial goals in a more tax efficient manner and therefore earn better
returns.In terms of operation, debt funds are not entirely different from other Mutual Fund schemes. However, in terms of safety of
capital, they score higher than equity Mutual Funds.

LIQUID FUNDS -- A Liquid Mutual Fund is a debt fund which invests in fixed-income instruments like commercial paper,
government securities, treasury bills, etc. with a maturity of up to 91 days. The net asset value or NAV of a liquid fund is calculated
for 365 days. Further, investors can get their withdrawals processed within 24 hours. These funds carry the lowest interest-rate risk
in the debt funds category.
HOW DO LIQUID MUTUAL FUNDS WORK -- The core objective of a liquid fund is providing capital protection and liquidity to the
investors. Therefore, the fund manager selects high-quality debt securities and invests according to the scheme’s mandate.
Further, he ensures that the average maturity of the portfolio is not more than 91 days. Shorter maturity makes the fund less prone
to change in interest rates. By matching the maturity of individual securities with the maturity of the portfolio, the fund manager tries
to deliver better returns. Liquid funds are known to offer better returns than a regular savings account.

PORTFOLIO CHURNING -- Simply put, churning the mutual fund portfolio means buying and selling mutual funds frequently. This
is the reverse of the recommended method of investing i.e. making investments and staying invested therein for the long-term.
Investors generally churn their portfolios because they are advised by their mutual fund agent/advisor to do so; the agent
sometimes even passes back to them a portion of the commission he earns as an incentive to induce the churn. Alternatively the
desire to clock higher returns by investing in a better performing fund triggers a portfolio churn. Finally, many investors have
inexplicable urge to invest in funds with lower Net Asset Values (NAVs) or New Fund Offers (NFOs) priced at Rs 10 that leads to a
churn in the portfolio.
FLOATING RATE FUNDS/SCHEMES -- A floating rate fund is a fund that invests in financial instruments that pays a variable
or floating interest rate. A floating rate fund, which can be a mutual fund or an exchange-traded fund (ETF), invests in bonds and
debt instruments whose interest payments fluctuate with an underlying interest rate level. Typically, a fixed-rate investment will
have a stable, predictable income. However, as interest rates rise, fixed-rate investments lag behind the market since their returns
remain fixed.Floating rate funds aim to provide investors with a flexible interest income in a rising rate environment. As a result,
floating-rate funds have gained in popularity as investors look to boost the yield of their portfolios.

KEY TAKEAWAYS
1. A floating rate fund is a fund that invests in financial instruments paying a variable or floating interest rate. A floating rate fund
invests in bonds and debt instruments whose interest payments fluctuate with an underlying interest rate level.
2. Floating rate funds can include corporate bonds as well as loans made by banks to companies. These loans are sometimes
repackaged and included in a fund for investors. However, the loans can carry default risk.
3. Although floating funds offer yields in a rising rate environment since they fluctuate with rising rates, investors must weigh the
risks of investing in the funds and research the fund holdings.

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