The investor in Debt market is a lender for the issuer.

1. Debt Market

2. 2
Story time
ABC Ltd. Become a renowned organization and now expanded its business throughout the world. Now,
it require further fund for expansion. But, this time Mr. A planned to not issue further shares and
dilute his ownership but to launch an investment option called Bonds, in which it has planned to take
investors money for tenure of 5 years and after that ABC ltd will return back the invested money of
investor. And, during this 5 years, company will pay 10% interest/coupon to each of its investor who
has invested in this bond.
If you have invested Rs. 50,000 at Rs. 1000 of each bonds in this bond. (Face value will be Rs. 1000) on
1st March 2013. You will get 50 bonds, Yearly interest of Rs. 5000 (1,000X10%=Rs. 100 per bond &
100X50 no. of bonds = Rs. 5,000 as interest amount)

3. 3
WHAT IS DEBT?
In English the meaning of debt is loan, the same is the meaning of Debt in investment.
It is a contract between issuer and investor on pre-determined rate of interest, maturity and the
repayment of the principal amount.
The investor in Debt market is a lender for the issuer.
The major investor in this are institutional investor (corporate, Banks, Insurance etc.)
Instrument Features:
 Maturity: The period of bonds, it is life spam of bond, after this bond doesn’t exist in the market.
 Interest/Coupon: This is a amount that issuer pays to investor to on
daily/weekly/monthly/quarterly/annually. This measures in percentage and it is paid on face value.
 Principal Amount: This is a money that an investor invest.

4. 4
Debt Market
Organized
Debt Market
Bonds &
NCDs
Primary
Market
Secondary
Market
Fixed Deposits
Primary
Market
Non-traded on
exchange
Unorganized
Debt Market
Money
lenders

5. 5
DebtMarket:
 Bonds: The major issuer is corporate, It issue at a price and pay regular interest amount
and at the maturity it pays back the investors’ capital. After the issue of a bond, it can be
traded in the secondary market (as like as equity).

6. 6
 Debentures: Basic feature of NCDs is as same as Bonds, the only difference is
there are two types of debentures.
 Convertible: this gets converted in shares after some period of time.
 Non-Convertible: Debentures cannot be converted into shares, it has a
maturity value and investor gets the regular interest and get back the capital
after the maturity.

7. 7
DebtMarket
 Fixed Deposit: There are two types of FD (Fixed Deposit)
 Bank FD: In this issuer is a bank, t has a fix tenure, and a fix interest rate, (it is perceive
as safer investment option).
 Corporate FD: In this issuer is a corporate (a company), the rest feature is as same as
bank FD. It offers higher interest rate then Bank FD.
Bank FD
• Issuer is a bank
• It has a fix tenure
• It has fix interest rate
• It is perceive safer than Corporate FD
• Current Average rate of Interest in 9%
• Has insurance of upto Rs. 1 lac of FD
Corporate FD
• Issuer is a Corporate
• It has a fix tenure
• It has fix interest rate
• It is perceive as riskier than Bank FD
• Current Average rate of Interest in 10.50%
• Has no insurance of investment. Max. you
can file a complaint against the company in
SEBI or RBI

8. FD v/s Bonds & FDs
• FixedDeposits
• Issuer is a bank & Corporate
• It has a fix tenure
• It has fix interest rate
• It is non-traded in exchange
• Investor have to hold it till maturity
• Penalty on pre-matural
• Bonds &NCD’s NCDs
• Issuer is a Corporate
• It has a fix tenure
• It has fix interest rate
• It is traded in exchange
• Investor can sell in exchange before
Maturity
• No penalty on pr-matural, because
one can trade in the market

9. 9
RiskAssociated:
One of a major risk in Debt market is a default risk; it means a company unable to pay back capital or/and
interest amount.
To reduce that risk, there are few agencies who tracks the fundamental situation of the company and give
rating the particular company. (One of the famous credit rating agencies is CRISIL). These agencies are
known as Credit Rating Agency.
The ratings describes like;
AAA- Most fundamental company safest company8 to invest, and it gradually reduces its quality with AA,
A, BBB, BB, B CCC, CC, C, and is default company.
Lower the credit rating, higher the interest rate that a company offers to its client.

10. 10
Interest Rate Risk
• Something which we can earn but not able to earn, because we have blocked our funds
somewhere else. This is known as interest rate risk.
• Means, the interest rate is keep on changing, so if an investor invested at 10% interest
rate FD/Bond, and there is a new bond launched with 12% interest rate, so this investor
is loosing this 2% extra benefit, this is known as interest rate risk.

11. 11
Howsecondarymarketsfunctionin DebtMarket
• The function of secondary market is as same as equity market. However, Debt
market is not that volatile then equity market.
• The prices fluctuates in Debt market due to interest rate fluctuations.
If interest rate comes down, the price of bonds goes up and vice a versa.

12. 12
Pariksha 2
1. Who can invest in Bonds?
1. Individual
2. Insurance, Banks etc.
3. NRI
4. All of the above

13. 13
2. Which of the following feature is not available in Bonds?
1. Regular Interest Payment
2. Maturity
3. Can be tradable in stock exchange
4. Can be converted in equity

14. 14
3. Coupon rate and interest rates are two different concepts.
1. True
2. False

15. 15
4. What is Coupon?
1. A piece of paper
2. Rate of return.
3. Interest rate
4. 2nd & 3rd

16. 16
5. If a company is paying interest of Rs. 250 every month and rate of interest is 25%.
What is the face value of bond?
1. Rs. 100
2. Rs. 1000
3. Rs. 10
4. Cannot say

17. 17
6. Fixed Deposit is tradable in secondary market
1. True
2. False

18. 18
7. Corporate FD offers higher rate than Bank FD.
1. True
2. False

19. 19
8. It’s safe to invest in 20% interest rate corporate FD
1. True
2. False

20. DISCLOSURE
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Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West),
Mumbai- 400 064. Tel No: 022 3080 1000. Registration Nos.: NSE (Cash): INB231041238; NSE (F&O):
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PMS & Mutual Funds are offered through MOAMC which is group company of MOSL. Motilal Oswal
Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through
MOWML which is a group company of MOSL. Motilal Oswal Securities Ltd is a distributor of Mutual
Fund & IPOs. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully
before investing. Investment in Securities is subject to market risk and there is no assurance or
guarantee of the returns.
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