Finatix - The Finance Club of IIM Raipur

Presents

In India, the Government as well as the business owners' issue these for raising
funds to finance its long-term investments or their current expenditures needs.
Government Securities bond – Issued by Central or State government of
1 India
Corporate bond – Issued by companies to borrow money from
2 investors for a fixed period
Convertible bonds – Offers both features of debt and equity but
3 not at the same time
Bonds 4 Zero coupon bonds – Pure discount bonds in which invested money
does not offer regular interest until maturity of bond
Inflation linked bonds – Provide protection against inflation,
5 principal and interest rate rise and fall with the rate of inflation
RBI bonds - The floating rate saving bonds 2020 (FRSB) issued by
6 the RBI are RBI Taxable bonds with a tenure of 7 years
Sovereign Gold Bonds - Issued by the central government for investors
7 who want to invest in gold but don’t want to keep gold in physical form
 YTM Calculation

Mr. Arjun had been saving his money in Fixed Deposits since he
started working, but he is concerned about the declining Fixed
Deposit Interest Rates and thought of investing in Bonds.
He wants to check the YTM – Yield to maturity to filter and select the
suitable bonds. YTM is an indicator of potential returns from bonds or
similar debt funds, and it is calculated by the below formula
Yield to Maturity = [Annual Interest + {(FV-Price)/Maturity}] /
[(FV+ Price)/2]
• Annual Interest = Annual Interest Payout by the Bond
• FV = Face Value of the Bond
• Price = Current Market Price of the Bond
• Maturity = Time to Maturity i.e., number of years till Maturity of
the Bond

This YTM will vary as per market conditions due to variations in

current market price. However, once invested YTM will not vary.

Face Value ₹1000

Annual Coupon Rate 6% YTM= [60 + {(1000-
Annual Interest Payout ₹60 900)/10}] / [(1000+900)/2]
Time to Maturity 10 years = 7.4%
Current Market Value ₹900