bond valuations
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UNDERSTANDING DEBT MARKET
The debt market is the market where fixedincome securities of various types and featuresare issued and traded .
Importance of Debt Market to any economy
Efficient mobilization and allocation of resources.
Financing the development activities of the Government.
Transmitting signals for implementation of the monetary policy.
Facilitating liquidity management in tune with overall shortterm and long term objectives.
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UNDERSTANDING DEBT MARKET
Indias Debt Market
The debt market in India comprises broadly two segments, viz.,
Government Securities Market
Corporate Debt Market. This is further classified as Market for
PSU Bonds and Private Sector Bonds.
The trading platforms for government securities are the NegotiatedDealing System and the Wholesale Debt Market (WDM) segment
of National Stock Exchange (NSE) and Bombay Stock Exchange
(BSE).
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UNDERSTANDING DEBT MARKET
The
Structure
of the
Indian
Debt
Market
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GLOSSARY FOR BOND MARKET
Bond: A Bonds represents a Contract under Which a BorrowerPromises to pay Interest and Principal on Specific dates to theholder of the Bond.
Issuer : The issuer of a bond is a crucial factor to consider, as theissuer's stability is your main assurance of getting paid back. Forexample, the U.S. government is far more secure than anycorporation.
Face Value/Par Value : The face value (also known as the parvalue or principal) is the amount of money a holder will get backonce a bond matures. A newly issued bond usually sells at the parvalue.
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GLOSSARY FOR BOND MARKET
Coupon (The Interest Rate): The coupon is the amount thebondholder will receive as interest payments. It's called a"coupon" because sometimes there are physical coupons on thebond that you tear off and redeem for interest.
Coupon Payments: The coupon payments represent the periodicinterest payments from the bond issuer to the bondholder.
Maturity : The maturity date is the date in the future on which
the investor's principal will be repaid. Maturities can range fromas little as one day to as long as 30 years (though terms of 100years have been issued).
Original Maturity & Remaining Maturity
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GLOSSARY FOR BOND MARKET
Call Date: For bonds which are callable, i.e., bonds which can be
redeemed by the issuer prior to maturity, the call date represents
the date at which the bond can be called.
Call Price: The amount of money the issuer has to pay to call acallable bond. When a bond first becomes callable, i.e., on the call
date, the call price is often set to equal the face value plus one
year's interest.
Yield: Yield is a figure that shows the return you get on a bond.
The simplest version of yield is calculated using the following
formula: yield = coupon amount/price.
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GLOSSARY FOR BOND MARKET
Yield To Maturity: When bond investors refer to yield, they areusually referring to yield to maturity (YTM). YTM is a moreadvanced yield calculation that shows the total return you will
receive if you hold the bond to maturity.
Yield to Call : The rate of return that an investor would earn if hebought a callable bond at its current market price and held ituntil the call date given that the bond was called on the call date.
The Link Between Price And Yield: The relationship of yield toprice can be summarized as follows: when price goes up, yield goesdown and vice versa. Technically, one can say the bond's priceand its yield are inversely related.
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CLASSIFICATION OF BONDS
Bonds are known as fixed-income securities because you know the
exact amount of cash you'll get back if you hold the security until
maturity.Used in Bond Market Meaning in General Terms
Bonds Loans (in the form of a security)
Issuer of Bonds Borrower
Bond Holder Lender
Principal AmountAmount at which issuer pays interest and which is repaid on thematurity date
Issue Price Price at which bonds are offered to investorsMaturity Date Length of time (More than one year)
CouponRate of interest paid by the issuer on the par/face value of thebond
Coupon Date The date on which interest is paid to investors
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CLASSIFICATION OF BONDS
Government Bonds Corporate bondsBills - debt securities maturing in less than one year.Notes - debt securities maturing in one to 10 years.
Bonds - debt securities maturing in more than 10 years.
Classification on the basis of Variability of Coupon
1. Zero Coupon Bonds: Zero Coupon Bonds are issued at a discountto their face value and at the time of maturity, the principal/face
value is repaid to the holders.
2. Treasury Strips: buy coupon paying treasury bonds and usethese cash flows to further create zero coupon bonds.
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CLASSIFICATION OF BONDS
3. Floating Rate Bonds: In some bonds, fixed coupon rate to be
provided to the holders is not specified. Instead, the coupon
rate keeps fluctuating from time to time, with reference to a
benchmark rate. Such types of bonds are referred to as
Floating Rate Bonds.
Classification on the Basis of Variability of Maturity
1. Callable Bonds
2. Puttable Bonds
3. Convertible Bonds
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CLASSIFICATION OF BONDS
Classification on the basis of Principal Repayment
1. Amortizing Bonds
2. Bonds with Sinking Fund Provisions
Many people invest in bonds with an objective of earning certain
amount of interest on their deposits and/or to save tax. Bonds are
considered to be a less risky investment option and are generally
preferred by risk-averse investors.
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BOND VALUATIONS &
COMPARISON Credit Rating of Bonds
In India, the main credit bureaus are CRISIL, ICRA and CreditRegistration Office (CRO). CRISIL Standard & Poor's are major
shareholder, CARE 61% owned by 3 major Indian banks
(IDBI,SBI, Canara), ICRA Moodys is a major shareholder, Duff
& Phelps (India) Subsidiary, Fitch (India) Subsidiary.
Benefits of Investing in a Government Security
Future of Bond Market In India
When to Invest In Bonds
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CURRENT SCENARIO OF BOND
MARKET
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CURRENT SCENARIO OF BOND
MARKET
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CURRENT SCENARIO OF BOND
MARKET
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CURRENT SCENARIO OF BOND
MARKET
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CURRENT SCENARIO OF BOND
MARKET
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