TYPES OF

Fixed
Income
Instruments
 1

Government Bonds
A government bond is a debt security
issued by a government to support public
spending. It includes a commitment to pay
periodic interest (coupon payments) and
to repay the face value on the maturity
date.

Example
A Treasury Bill (T-Bill) issued by the RBI and
the US govt issuing a Treasury Bond.

Vinayak Narvekar
 2

Sovereign Gold Bond

Sovereign Gold Bonds (SGB) are
government securities denominated in
grams of gold. Issued by the RBI, these
bonds offer an alternative to owning
physical gold.

Example
RBI issues Sovereign Gold Bonds (SGB)
2023-24 Series-IV from February 12-16.

Vinayak Narvekar
 3

Foreign Bonds
A foreign bond is a bond issued by a
foreign company or institution in a country
which is outside its home country. The
foreign bond is usually denominated in the
currency of where it is expected to be sold.

Example
A US Dollar denominated Bond Yankee is
issued in the US market by a Japanese
company.

Vinayak Narvekar
 4
EuroBonds
Eurobond is a generic term that applies to
any bond issued without a specific
jurisdiction. It does not refer to bonds
issued only in Europe. A eurobond is a bond
issued by a company, denominated in a
currency other than that of its country.

Example
Indian company issued a U.S. dollar
currency bond in Japan known as USD-
denominated Eurobonds.

Vinayak Narvekar
 5

Convertible Bonds
A convertible bond is a bond that gives the
holder the right, but not the obligation, to
convert the bond into a specified number
of underlying shares (ordinary shares) of
the issuing company on terms that are set
out at the time of issue of the bond.

Example
Company X issued a convertible bond of
$1,000 face value, 2% interest, 5-year
maturity. If the stock price soars, investors
can convert the bonds for its equity shares.

Vinayak Narvekar
 6

Zero-Coupon Bonds
Zero coupon bonds represent one form of
discount security. This type of bond does
not pay interest, but the price paid by the
investor to acquire this bond at the time of
issue is at a discount to the capital
redemption price at maturity.

Example
You pay $3,500 to purchase a 20-year zero
coupon bond with a face value of $10,000.
After 20 years, the issuer of the bond pays
you $10,000.

Vinayak Narvekar
 7

Floating-Rate Notes
A floating-rate note (FRN) is a bond,
except that its coupon is linked to a
floating interest rate. FRN might pay a
semi-annual or quarterly coupon linked to
a benchmark rate, such as the Repo Rate,
SONIA, etc.

Example
Apple issues Floating Rate Notes (FRNs)
with a 3-month reset period. You buy a
$10,000 FRN tied to the SONIA rate + 1.5%.
Here the SONIA rate keeps changing.

Vinayak Narvekar
 8
Index-Linked Bonds
Index-linked bonds (variable or floating-
rate) are fixed-income securities where the
coupon payment (the income) and the
principal (redemption price) are adjusted
to take into account movement in retail
prices.

Example
$10,000 TIPS with a 2% coupon rate and 5-
year maturity. If inflation rises to 3%, the
principal amount adjusts to $10,300,
reflecting the inflation.

Vinayak Narvekar
 9
Green Bonds
A green bond is a fixed-income security
specifically designed to finance projects
with positive environmental or climate
benefits. Unlike traditional bonds, the use of
funds raised through green bonds is
designated towards projects such as
Renewable Energy, Climate change, etc.

Example
For tackling pollution in Mumbai, they issue
a Green Bond worth ₹1 billion to finance a
large-scale solar power project.

Vinayak Narvekar
Thanks for Reading

Make sure
you follow
Vinayak
Narvekar