topic of report

8/4/2019 Topic of Report

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A Project ReportOn

Analysis of debt market and debt instruments

at Bharti AXA Life Insurance Co. Ltd.

In Partial fulfilment of the

Requirement of the award for the Degree of

MASTER OF BUSINESS ADMINISTRATION

GEA NATIONAL COLLEGE

GUWAHATI, INDIA

(Recognised by Punjab Technical University)

Submitted by :

Mrs.PoonamJasrotia

Roll no.-821149016

Session-2008-2012


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OFFICE OF THE DIRECTOR

GEA NATIONAL COLLEGE, GUWAHATI, INDIA

CERTIFICATE

This is to certify that Mrs. Poonam Jasrotia, a student of our college of MBA final year holding

Punjab Technical University Enrollment No. 821149016 has done her project titled Analysis of

debt market and debt instruments at BhartiAXA Life Insurance Co. Ltd. from GEA NATIONAL

COLLEGE, Guwahati.

I found her good during her course tenure in our college.

I wish her all success in life.

Nabajyoti Bharali

Director

GEA National College


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CERTIFICATE BY GUIDE

This is to certify that Mrs. Poonam Jasrotia, a student of our college of MBA final semester has

done her project titled Analysis of debt market and debt instruments for the fulfilment of MBA.

I found her good during his course tenure in our college.

I wish her success in life.

Project Guide: DIBYAJYOTI DEY

Department of I.T/ Management / Multimedia

GEA NATIONAL COLLEGE


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SELF CERTIFICATE

I do hereby state that the project report entitled Analysis of debt market and debt instruments

has done by me only and submitted for the fulfilment of the degree of Master of Business

Administration (MBA) at GEA NATIONAL COLLEGE, Guwahati.

I also declare that all the contents of this report has not submitted in anywhere for the award of

this degree.

Poonam Jasrotia

MBA 4th sem student

Roll no.-821149016


Guwahati


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ACKNOWLEDGEMENT

At the very outset, I would like to express my sincere thanks and gratitude to my respectedExternal guide Mr.. Kishor Bhattacharjee Sir for his invaluable suggestions, advice and

inspirations.

I express my profound sense of sincere and deep gratitude to Mr. Dibyajyoti Dey for his

guidance, suggestions in the project.

I express my thanks to all the staff members of Bharti AXA Life Insurance Co., Guwahati for

providing me all training facilities and other requirements and also their precise advice from time

to time.

I would like to thank all the faculty members of management department of our college who

helped me a lot in completing this project successfully.

Lastly, I would like to express my whole hearted thanks to all my classmates and well wishers

for their encouragement, advices that have made this project a possible venture in my life.

I am very thankful to almighty, my parents and all my friends.

Thanking you all.

Poonam Jasrotia

MBA 4th Sem student


Guwahati


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TABLE OF CONTENTS

S.NO. PARTICULARS PAGE NO. REMARKS

1. CHAPTER-1:Introduction

a) Company Profile 1

b) IRDA and its role 2

c) History of Insurance in India 3

d) Management Profile & Products 4-7

e) Vision, attitudes and strategy 8

of the Company

f) Group sites and key developments of company 9-10

g) About Divisional office in Guwahati 11

2. CHAPTER-2: Research Methodology

a) Objectives of the study 12

b) Scope of the study 13

c) Research Methodology 14

3. CHAPTER-3:Introduction to the Topic: 15

Analysis of Debt Markets and Debt

Instruments in India

a) History of Indian Debt Market 16

b) Objectives of debt market 17

c) Regulators and Participants 18-20

d) Trading structure of debt market 21-22


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e) Major reforms in the debt market 23-24

4. CHAPTER-4: Theory and concepts in theproject

a) Debt Market: Classification and investment 25-30

criteria in India

b) Debt Instruments: Types , their features and 31-38

functions

5. CHAPTER-5 :Data Analysis and Interpretation 39-40

a) How Debt market can be a good investment 41-42

of all others?

b) Findings and Recommendations 43-44

c) Advantages and limitations of debt market 45

d) Exclusions 46

e) Conclusion 47

f) Bibliography 48


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PREFACE

The objective of this internship project report is to provide a thorough

knowledge of the debt market and all debt instruments in India through an

important and popular source of debt market i.e. insurance. Bharti AXA Life

Insurance Co. is one of the most popular life insurance co. in India which has a

joint venture between Bharti ,one of India's leading business groups in telecom,

agricultural business and retail, and AXA, which is a global leader in financial

protection and wealth managementwhich has proved itself to be a revolutionary

change in the history of insurance sector.

This project analyses the types of debt market and various debt

instruments .In the light of this research , various diagrams ,tables and pie charts

are used as the tools to analyze the position of the debt market in India.


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COMPANY PROFILE

Bharti AXA Life Insurance Co. Ltd. is a joint venture between Bharti, one of India'sleading business groups in telecom, agricultural business and retail, and AXA, which isa global leader in financial protection and wealth management. Bharti Enterprises hasbeen a pioneering force in the telecom sector with over 110 million customers whileAXA major operations are based out of Western Europe, North America and theAsia/Pacific region. It also has operations in Australia, New Zealand, Hong Kong,Singapore, Indonesia, Philippines, Thailand, China, India and Malaysia. Bharti AXA LifeInsurance is an entity jointly controlled by these two giants with Bharti holding 74%stake and AXA, the rest 26%. The company launched its operations in India InDecember 2006 and has be continuously expanding since then. Today, Bharti AXA Life

Insurance is making its presence felt across the country and is catering to the insuranceand wealth management needs of the people. Given below is a list of plans andfinancial solutions provided by Bharti AXA life insurance.

Bharti Enterprises is one of Indias leading business groups with interests in telecom,agricultural business, financial services, and retail. Bharti has been a pioneering force inthe telecom sector with many firsts and innovations to its credit. Bharti Airtel Limited, agroup company, is one of Indias leading private sector providers of telecommunicationsservices with an aggregate of over 110 million customers, spanning Mobile services,

Telemedia services and Enterprise services.Bharti Airtel has been ranked amongst the best performing companies in the world inthe BusinessWeek IT 100 list 2007. Bharti Teletech is the countrys largestmanufacturer and exporter of telephone terminals. Bharti has a joint venture BhartiDel Monte India (P) Ltd with Del Monte Foods India Pvt. Ltd., to offer fresh andprocessed fruits and vegetables in the domestic as well as international marketsincluding Europe, USA and Middle East. Bharti has recently forayed into retail businessunder Bharti Retail Pvt. Ltd. It also has a joint venture - Bharti Wal-Mart Private Ltd. -with Wal-Mart for wholesale cash-and-carry and back-end supply chain managementoperations in India.

AXA Group is a worldwide leader in Financial Protection. AXAs operations are diversegeographically, with major operations in Europe, North America and the Asia/Pacificarea. In 2010, total revenues amounted to Euro 91 billion and total revenues underlyingearnings to Euro 3.9 billion


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HISTORY OF INSURANCE SECTOR IN INDIA

The business of life insurance in India in its existing form started in India in the year

1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Someof the important milestones in the life insurance business in India are given in the table.

Table 1: milestones in the life insurance business in India

Year Milestones in the life insurance business in India

1912 The Indian Life Assurance Companies Act enacted as the first statute to

regulate the life insurance business

1928 The Indian Insurance Companies Act enacted to enable the government

to collect statistical information about both life and non-life insurance

businesses

1938 Earlier legislation consolidated and amended to by the Insurance Act

with the objective of protecting the interests of the insuring public.

1956 245 Indian and foreign insurers and provident societies taken over by

the central government and nationalised. LIC formed by an Act ofParliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore

from the Government of India.

Insurance has a long history in India. Life Insurance in its current form was introduced in1818 when Oriental Life Insurance Company began its operations in India.History ofInsurance in India can be broadly bifurcated into three eras: a) Pre Nationalisation b)Nationalisation and c) Post Nationalisation. Life Insurance was the first to benationalized in 1956. Life Insurance Corporation of India was formed by consolidatingthe operations of various insurance companies. General Insurance followed suit and

was nationalized in 1973.The process of opening up the insurance sector was initiatedagainst the background of Economic Reform process which commenced from 1991. Forthis purpose Malhotra Committee was formed during this year who submitted theirreport in 1994 and Insurance Regulatory Development Act (IRDA) was passed in 1999.Resultantly Indian Insurance was opened for private companies and Private InsuranceCompany effectivelystarted operations from 2001.


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The Insurance Regulatory and Development Authority in India

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in

Parliament in December 1999. The IRDA since its incorporation as a statutory body in

April 2000 has fastidiously stuck to its schedule of framing regulations and registering

the private sector insurance companies. The other decision taken simultaneously toprovide the supporting systems to the insurance sector and in particular the life

insurance companies was the launch of the IRDAs online service for issue and renewal

of licenses to agents. The approval of institutions for imparting training to agents has

also ensured that the insurance companies would have a trained workforce of insurance

agents in place to sell their products, which are expected to be introduced by early next

year. Since being set up as an independent statutory body the IRDA has put in a

framework of globally compatible regulations. In the private sector 12 life insurance and

6 general insurance companies have been registered.

Role of IRDA:

Section 14 of IRFDA Act, 1999 lays down the duties, powers & functions of

IRDA. The power & functions of the Authority shall include: 1. 2. Issue to the

applicant a certificate of registration, renew, modify, Protection of the interests of

the policy holders, insurable interest,

withdraw, suspend or cancel such registration. settlement of insurance claim,

surrender value of policy & other terms & conditions of contracts of insurance. 3.

4. Specifying requisite qualifications, code of conduct, & practical training Callingfor information from, undertaking inspection of, conducting for intermediary or

insurance intermediaries & agents; enquiries & investigations including audit of

the insurers, intermediaries, insurance intermediaries & other organizations

connected with the insurance businnes; 5. Control & regulations of the rates,

advantages, terms & conditions that may be offered by insurer in respect of

general insurance business not so controlled & regulated by the Tariff Advisory

Committee under the section 64U of the Insurance Act, 1938 (4 of 1938). 6.

Adjudications of disputes between insurers & intermediaries or insurance

intermediaries.


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MANAGEMENT PROFILE

Sandeep Ghosh is the Chief Executive Officer at Bharti AXA Life Insurance.He hasover 20 years of experience in India and overseas, primarily in the financial servicessector. Prior to joining Bharti AXA Life, he was with ANZ as the Managing Director,Commercial Banking Head for Asia Pacific based in Hong Kong. During this time, heplayed a major role in building a commercial banking franchise for ANZ in Asia through

organic builds and the integration of businesses acquired from RBS

Mark Meehan is currently the Chief Marketing and Operations Officer for Bharti AXALife Insurance Company Ltd.Marks previous role in AXA was that of CEO of Tynan Mackenzie P/L, a professionalinvestment services company. His role in Bharti AXA Life as CMOO includesMarketing,Product Development, Customer Service, Underwriting, Claims, Channel &Distribution Operations, Information Technology and Systems, Six Sigma, BusinessContinuity and Client Persistency Management.


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V Srinivasan is currently the Chief Financial Officer of Bharti AXA Life InsuranceCompany. He started his career as a Chartered Accountant in 1989 and over the pasttwo decades has emerged as a stalwart in the financial sector. With over 8 years of richexperience in the Life Insurance industry, today, he stands as a storehouse of financialmanufacturing and oil & gas.

Sushanto Mukherjee is the Chief Distribution Officer for Bharti AXA Life Insurance

Company Ltd. Prior to this, he was Director & Head Partnership Distribution & GroupBusiness at Max New York Life Insurance Co. Ltd

.

Products

Individual plans

ProtectionThis plan takes care of all individual needs. The minimum sum assured is Rs. 2500000with no limit on the maximum insurance cover. The Protection Plan covers people up tothe age of 75 and provides several tax benefits complementary with this scheme.Further added protections of critical illness benefit, accidental death and disabilitybenefit are also given. The plans and policies under this genre are:

Bharti AXA Life Elite Secure

Bharti AXA Life Secure Confident

Bharti AXA Life Family Income Secure

Bharti AXA Life Protect Plus


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Wealth Creation

This genre of policies comes with a double advantage of financial protection for yourfamily and a good investment option that ensures long term benefits. The Child Planshelp you cover for the education and marriage of your children with a guaranteedmoney payback offer. There are also other options which are innovative and provide formarket ups, but do not account for the market lows!

Bharti AXA Life Premium Waiver Rider

Child Plans

Bharti AXA Life Future Champs Bharti AXA Life Bright Stars EDGE.

Guaranteed Plans

Bharti AXA Life Save Confident

Bharti AXA Life True Wealth

Bharti AXA Life Aajeevan Anand

.

Bharti AXA Life Aajeevan Anand.

Other Market Link Plans Bharti AXA Life WealthOne

Health

Health Plans for individuals offer an extremely low premium of Rs. 3 per day andcomprise of providing protective cover for accidental hospitalization and ICU treatments.Incidental hospital expenses like medical consultations or daily hospital cash are givenby these policies offered by Bharti AXA. There is also a discount of 10% for each familymember that you enroll.

Bharti AXA Life EasyHealth


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Retirement

This plan helps in accumulating wealth for the retirement years with a guaranteedretirement amount and a vested retirement bonus too. At the time of vesting, there is anoption of commuting 1/3rd of the amount received and 2/3rd can be used in purchasingan annuity. If there is a death during the policy term, 108% of the total premiums arepayable to the immediate family. Individuals can choose from - an age '60 term or a 10year term.

Bharti AXA Life Wonder Years Retirement Plan

Group Plans

Life InsuranceSafeguarding your family against uncertainties is not a hard task with the Group LifeInsurance plan offered by Bharti AXA. The Life Shield Policy secures every individual ofthe group by providing a low premium life insurance. The Life Sanjeevani is a singlepremium group term life insurance product that deems financial security and protectionto your loved ones.

Bharti AXA Life Shield

Bharti AXA Life Sanjeevani

Credit Protection:This set of schemes covers for your absence in such a way that yourfamily is not burdened with the repayment of loans. Bharti AXA Life pays the amount tosettle this outstanding amount. There is another group product designed for customersof institutions and banks that protects the family in case of the loan borrower's death.

Bharti AXA Life CreditSecure

Bharti AXA Life Mortgage Credit Secure

Bharti AXA Life Credit Shield

Bharti AXA Life Premier Protect Home Shield

HealthThis typically protects the group insured against 6 critical illnesses namely cancer, heartattack, by-pass surgery, loss of limbs, stroke and kidney failure. It is a single premiumplan and can be useful for an individual or for the family.


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VISSION AND STRATEGY OF THE COMPANY:

We undertook an in-depth analysis wherein we identified the notion of preference wastotally related to the trust granted to various names in insurance and financial services.The level of trust is very inadequate today, regardless of the brand considered. This isbecause the perception of consumers is that we are all evolving only in "a world ofpromises." And this is whatwe have to redefine.

Beyond promises... proof

We don't want to make promises any more. Instead, we want to demonstrate our abilityto respond to client needs with real and tangible proof and, in so doing, to establish anauthentic relationship of trust with our clients.

Strategy of the company.

To achieve a market position among the top 5 in India through a multi-distribution, multi-product platform

To adapt AXA's best practice blueprints as a sound platform for efficient and profitablegrowth

To leverage Bharti's local knowledge, infrastructure and customer base

To deliver high levels of shareholder return

To build long term value with our business partners by enhancing the proposition totheir customers.


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Group Sites:

1.Airtel

2.Bharti AXA General Insurance

3.Bharti-Tele Tech Ltd

4.Bharti AXA Investment Managers

5.Bharti Tele Soft

6.Bharti Resources

7.Bharti Foundation

keydevelopments in Bharti AXA Co. ltd:

Bharti Life Insurance Co. Ltd. announced the launch of a unique traditional participatingmoney-back plan, Bharti AXA Life Monthly Income Plan. Bharti AXA Life MonthlyIncome Plan guarantees the policyholder additional monthly income. Furthermore, theplan also provides the policyholder with life cover, financially protecting the nominee, incase of the unfortunate death of the policyholder. Bharti AXA Life Monthly Income Planis the first regular monthly income product in the company's portfolio. This is in line with

the company's brand positioning of 'Jeevan Suraksha ka Naya Nazariya' that hascustomer centricity and trust at its core.Bharti AXA Life Insurance Co. Ltd. Appoints Sandeep Ghosh as CEO

06/14/2011

Bharti AXA Life Insurance Co. Ltd. announced the appointment of Sandeep Ghosh asits Chief Executive Officer. Ghosh, who has over 20 years of experience in India andoverseas, primarily in the financial services sector, had worked for ANZ as theManaging Director, Commercial Banking Head for Asia Pacific based in Hong Kong.

RIL Reportedly Close To Acquiring Stake In Bharti AXA

05/24/2011

Reliance Industries Limited (RIL) is close to acquiring Bharti Enterprises Limited's 74%stake in Bharti AXA Life Insurance Co. Ltd. NDTV reported that Reliance has valuedBhartis 74% stake in Bharti AXA at INR 30 billion or INR 17 per share. However, Bharti
http://www.airtel.in/http://www.airtel.in/http://www.airtel.in/http://www.bharti-axagi.co.in/homepage/homepage.aspxhttp://www.bharti-axagi.co.in/homepage/homepage.aspxhttp://www.bharti-teletech.net/http://www.bharti-teletech.net/http://www.bharti-teletech.net/http://www.bhartiaxa-im.com/http://www.bhartiaxa-im.com/http://www.bhartitelesoft.com/http://www.bhartitelesoft.com/http://www.bhartiresources.com/Login.aspx?ReturnUrl=%2fDefault.aspxhttp://www.bhartiresources.com/Login.aspx?ReturnUrl=%2fDefault.aspxhttp://www.bhartifoundation.org/wps/wcm/connect/bhartifoundation/BhartiFoundation/Homehttp://www.bhartifoundation.org/wps/wcm/connect/bhartifoundation/BhartiFoundation/Homehttp://www.bhartifoundation.org/wps/wcm/connect/bhartifoundation/BhartiFoundation/Homehttp://www.bhartiresources.com/Login.aspx?ReturnUrl=%2fDefault.aspxhttp://www.bhartitelesoft.com/http://www.bhartiaxa-im.com/http://www.bharti-teletech.net/http://www.bharti-axagi.co.in/homepage/homepage.aspxhttp://www.airtel.in/


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is looking at a valuation of INR 33 per share. Sources stated that the option of AXAshelling out some compensation to Bharti .

06/03/2009

Bharti AXA Life Insurance launches ULIP with increasing guarantee

Bharti AXA Life Insurance Company Limited, the private life insurance joint venturebetween Bharti Enterprises and AXA, world leader in financial protection, todayannounced the launch of an innovative premium guarantee product - 'GuaranteeBuilder'.

KEY BENEFITS OF INSURANCE

1) SAVINGS For unforeseen circumstances.

2) EDUCATION For childs education and for higher studies.

3) RETIREMENT Facilitates adequate savings for worry free retired life.

4) HEALTH SECURITY For future sudden happenings out of illness.
http://www.bharti-axalife.com/pdf/guarentee_builder_june_2009.pdfhttp://www.bharti-axalife.com/pdf/guarentee_builder_june_2009.pdf


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ABOUT DIVISIONAL OFFICE OF AXA BHARTI LIFE INS. Co.

Sandeep Ghosh is the CEO of the Bharti AXA Life Insurance Co. Ltd. and underhis directions ,the following set of the management work efficiently who enhanced thegrowth of not only the company but also led to the revolution of the entire insurance

sector in India.

Above is the Management profile of the divisional office of Bharti AXA Life Insurance

Co. in Guwahati and Mr. Kishor Bhattacharjee ,my internship trainer is the Distribution

Training Manager and Mrs. G. Sharma who helped me a lot in completing this project is

the Agency Development Manager here.

Advisors

Sales Managers

Branch Sales Mgr.-Mr. Pankaj Bora

Asst. Reg. Sales Mgr.-Mr. Vineet Verma

Regional Sales Manager-Mr. Ipsit Dash

Head of Agency Sales-Mrs. A.P.S. Bhalla

Distribution Head-Sushanto Mukherjee


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CHAPTER -2

RESEARCH METHODOLOGY

Objectives of the study:

1.To analyze the different debt markets in India and their popularity among the variousinvestors .

2.To also analyze all the debt market instruments like t-bills , certificates of deposits,govt. bonds ,etc.

3.To interpret that which debt instrument is a better option for the investors havingdifferent interests.

4.To know about the regulatory bodies and major participants of the Indian debt market.

5.To check the major reforms made in the Indian bond market.


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Scope of the study

In the present scenario as our economy is growing and the per capita income rising

people at large have got more money with them to invest in the market, who according

to their choice invest in share market, government bonds, life insurance, mutual funds,

real estate. If a consumer chooses to invest in mutual funds there are 33 mutual fund

companies, if one chooses to invest in stock market there are hundreds of companies

listed on the stock exchange, if he chooses to invest in life insurance there are 16

companies present such as ICICI PRUDENTIAL., AVIVA LIFE INSURANCE, KOTAK

LIFE INSURANCE, SBI LIFE INSURANCE, TATA AIG LIFE INSURANCE, LIC, BAJAJ

ALLIANZ, AXA BHARTI LIFE INSURANCE ,etc. AXA BHARTI LIFE INSURANCE is

one of the most important and popular source of the debt market. To study the various

important aspects of debt market and its instruments it is necessary to analyze and

interpret the use and popularity of different debt markets and debt instruments among

the various investors havingtheir own interests.


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RESEARCH METHODOLOGY

The research is carried on in a proper planned and systematic manner. This

based on findings.

The research methodology of this project is based on the qualitative data collected fromthe secondarysources .

1.PRIMARY DATA: No primary data was available due to some limitations , mainlydue to lack of time .Thus , in this preparing this project report no primary data is used.

2.SECONDARY DATA: The data is mainly collected from secondary sources .These include books, the internet, company brochures, product brochures, the company

website, competitors websites etc, newspaper articles etc.


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CHAPTER-3

TOPIC OF REPORT

The project report is based upon the analysis of the debt markets in India anddebt instruments like debentures . , govt. bonds ,corporate bonds, commercial papers

, etc. and to interpret that which is the best option for the investors having their own

personal interests .

INTRODUCTION TO THE TOPIC

Debt market refers to the financial market where investors buy and sell debt securities,mostly in the form of bonds. These markets are important source of funds, especially ina developing economy like India. India debt market is one of the largest in Asia. Like allother countries, debt market in India is also considered a useful substitute to banking.There are various types of debt market instruments for different investors of variousfields like bonds , certificates of deposits and other money market instruments.

The most distinguishing feature of the debt instruments of Indian debt market is that thereturn is fixed. This means, returns are almost risk-free.This fixed return on the bond isoften termed as the 'coupon rate' or the 'interest rate

INDIAN DEBT MARKET Pillars of the economy

The Debt market plays a very critical role for any growing economy which need toemploy a large amount of capital and resources for achieving the desired industrial and

financial growth. The Indian debt market today one of the largest in Asia and includessecurities issued by the Government (Central & State Governments), public sectorundertakings, other government bodies, financial institutions, banks and corporates.The Indian debt markets with an outstanding issue size of Government securities(Central and state) close to Rs.13,474 billion (or Rs. 1,34,7435 crore) and asecondary market turnover of around Rs 56,033 billion (in the previous year 2007) isthe largest segment of the Indian financial markets.(Source RBI & CCIL).

The Government Securities (G-Secs )market is the oldest and the largest component ofthe Indian debt market in terms of market capitalization, outstanding securities andtrading volumes. The G-Secs market plays a vital role in the Indian economy as it

provides the benchmark for determining the level of interest rates in the country throughthe yields on the government securities which are referred to as the risk-free rate ofreturn in any economy.


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Indian debt market

History

Towards the eighteenth century, the borrowing needs of Indian Princely States were

largely met by Indigenous bankers and financiers. The concept of borrowing from thepublic in India was pioneered by the East India Company to finance its campaigns inSouth India (the Anglo French wars) in the eighteenth century. The debt owed by theGovernment to the public, over time, came to be known as public debt.

Broadly, the phases of public debt in India could be divided into the followingphases.

Upto 1867: when public debt was driven largely by needs of financing campaigns.

1867- 1916: when public debt was raised for financing railways and canals and othersuch purposes.

1917-1940: when public debt increased substantially essentially out of theconsiderations of

1940-1946: when because of war time inflation, the effort was to mop up as much aspossible of the current war time incomes

1947-1951: represented the interregnum following war and partition and the economywas unsettled. Government of India failed to achieve the estimates for borrwings forwhich credit had been taken in the annual budgets.

1951-1985: when borrowing was influenced by the five year plans.

1985-1991: when an attempt was made to align the interest rates on governmentsecurities with market interest rates in the wake of the recommendations of theChakraborti Committee Report.

1991 to date: When comprehensive reforms of the Government Securities market wereundertaken and an active debt management policy put in place. Ad Hoc Treasury billswere abolished; commenced the selling of securities through the auction process; newinstruments were introduced such as zero coupon bonds, floating rate bonds and capitalindexed bonds; the Securities Trading Corporation of India was established.In India andthe world over, Government Bonds have, from time to time, have adopted innovativemethods for raising money.


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OBJECTIVES OF THE DEBTMARKET:

1.Safe investmentTo provide a completely safe and secure investment. The safest investments are moneymarketTreasury bills (T-bills), certificates of deposit (CD), commercial paper,etc.

2.IncomeTo increase their rate of investment return and take on risk above that of money marketinstruments.

3.Growth of CapitalTo help in the growth of capital along with good returns and safety.

4.Tax MinimizationTo adopt tax minimization as part of his or her investment strategy.

5.Marketability / LiquidityAchieving a degree of liquidity, which requires the sacrifice of a certain level of incomeor potential for capital.
http://www.investopedia.com/terms/t/treasurybill.asphttp://www.investopedia.com/terms/c/certificateofdeposit.asphttp://www.investopedia.com/terms/l/liquidity.asphttp://www.investopedia.com/terms/l/liquidity.asphttp://www.investopedia.com/terms/c/certificateofdeposit.asphttp://www.investopedia.com/terms/t/treasurybill.asp


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Regulators of debt market

Considering the volumes in this market, it was imperative that there had to be regulationsgoverning this market. The RBI is the main regulator of this market and SEBI playing asecond fiddle. Actually, the RBI has diverse roles to play in the debt market. It is the

regulator, it is the issuer of securities in the market (it issues G - secs on behalf of Govt.), ithas to manage the GoI's borrowing program, it has to check the volatility in the marketthrough its open market operations and it determines the interest rate policy.

1.RBI:The RBI determines the guidelines as to how the commercial banks can raisemoney from the general public. It controls the credit extended by the banks through itspolicies on CRR, SLR, priority sector lending, asset liability management (ALM), itsrefinance rate and its open market operations (OMO). Its policies on CRR and SLRdetermine the extent of bank investments in G - secs, the amount of liquidity available inthe system and have a profound effect on the interest rates prevalent in the economy. Itsguidelines on deployment of surplus funds by banks determine the amount of money going

to different sectors of the economy. Its guidelines on ALM determine the level of bankinvestment in various debt securities. Since the time, Indian economy has moved tomarket determined interest rates, the cutoff rate for G - secs auction, bank rate, repo rates,CRR and SLR set the benchmark for the interest rates in the economy. These set a floorrate for the interest rates in the economy. They form the basis for the entire yield curve.Also it monitors interest rates in the economy through its OMO.

MAJOR ACTS GOVERNING THE DEBT MARKET IN INDIA

Public Debt Act, 1944/Government Securities Act (Proposed): Governsgovernment debt market.

Securities Contract (Regulation) Act, 1956: Regulates government securities market.


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2. SEBI:

The SEBI gets

involved in the

debt market

when an entity

raises money

from the

individual

investors

through public

issue. As the

volume of public

debt issues

raising money

from individualinvestors is very

small, SEBI

plays a second

fiddle to the

RBI. It

determines the

guidelines for

raising money

through public

issues likedisclosures to be made, to disclose risks involved in the issue, terms and conditions of the

issue etc. SEBI is also the main regulator for Mutual Funds (only Money Market Mutual

Funds come under the purview of the RBI) and it also regulates the FII investment in the

debt market.Apart from these two main regulators, there are different regulators for

specific investors. For example, the Central Provident Funds commissioner regulates the

Provident Funds. The respective statutes of the LIC and GIC, under which they were

established, regulate them.

PARTICIPANTS

Central Governments, raising money through bond issuances, to fund budgetary deficitsand other short and long term funding requirements.

Reserve Bank of India, as investment banker to the government, raises funds for thegovernment through bond and t-bill issues, and also participates in the market throughopen-market operations.


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Primary Dealers, who are market intermediaries appointed by the Reserve Bank of Indiawho underwrite and make market in government securities, and have access to the callmarkets and repo markets for funds.

State Governments, municipalities and local bodies, which issue securities in the debt

markets to fund their developmental projects, as well as to finance their budgetary deficits.

Public Sector Units are large issuers of debt securities, for raising funds to meet thelong term and working capital needs. These corporations are also investors in bondsissued in the debt markets.

Public Sector Financial Institutions regularly access debt markets with bonds forfunding their financing requirements and working capital needs. They also invest in bondsissued by other entities in the debt markets.

Banks are the largest investors in the debt markets, particularly the treasury bond and

bill markets. They have a statutory requirement to hold a certain percentage of theirdeposits (currently the mandatory requirement is 24% of deposits) in approved securities

Mutual Funds have emerged as another important player in the debt markets, owingprimarily to the growing number of bond funds that have mobilized significant amountsfrom the investors.

Foreign Institutional Investors FIIs can invest in Government Securities upto US $ 5billion and in Corporate Debt up to US $ 15 billion.

Provident Funds are large investors in the bond markets, as the prudential regulationsgoverning the deployment of the funds they mobilise, mandate investments pre-dominantlyin treasury and PSU bonds. They are, however, not very active traders in their portfolio, asthey are not permitted to sell their holdings, unless they have a funding requirement thatcannot be met through regular accruals and contributions.

Corporate treasuries issue short and long term paper to meet the financial requirementsof the corporate sector. They are also investors in debt securities issued in the debtmarket.

Charitable Institutions, Trusts and Societies are also large investors in the debtmarkets. They are, however, governed by their rules and byelaws with respect to the kindof bonds they can buy and the manner in which they can trade on their debt portfolios.


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THE TRADING STRUCTURE OF DEBTMARKET

The Debt Markets in India and all around the world are dominated by Governmentsecurities, which account for between 50 - 75% of the trading volumes and the marketcapitalization in all markets. Government securities (G-Secs) account for 70 - 75% of the

outstanding value of issued securities and 90-95% of the trading volumes in the IndianDebt Markets. State Government securities & Treasury Bills account for around 3-4 % ofthe daily trading volumes. The trading activity in the G-Sec. Market is also veryconcentrated currently (in terms of liquidity of the outstanding G-Secs.) with the top 10liquid securities accounting for around 70% of the daily volumes.The segments in the secondary debt market based on the characteristics of the investorsand the structure of the market are:Wholesale Debt Market - where the investors are mostly Banks, Financial Institutions, theRBI, Primary Dealers, Insurance companies, MFs, Corporates and FIIs.

THE STRUCTURE OF DEBT MARKET IN INDIA(table no.-1)


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Retail Debt Market involving participation by individual investors, provident funds, pensionfunds, private trusts, NBFCs and other legal entities in addition to the wholesale investorclasses.The structure of the Wholesale Debt MarketThe Debt Market is today in the nature of a negotiated deal market where most of thedeals take place through telephones and are reported to the Exchange for confirmation. Itis therefore in the nature of a wholesale market


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There are various major reforms in Indian Debt market

The system of auction introduced to sell the government securities.

The introduction of delivery versus payment (DvP) system by the Reserve Bankof India to nullify the risk of settlement in securities and assure the smoothfunctioning of the securities delivery and payment.

The computerization of the SGL

. The launch of innovative products such as capital indexed bonds and zero

coupon bonds to attract more and more investors from the wider spectrum of thepopulace.

Sophistication of the markets for bonds such as inflation indexed bonds.

The development of the more and more primary dealers as creators of theGovernment of India bonds market.

The establishment of the a powerful regulatory system called the trade for tradesystem by the Reserve Bank of India which stated that all deals are to be settled

with bonds and funds.

A new segment called the Wholesale Debt Market (WDM) was established at theNSE to report the trading volume of the Government of India bonds market.

Issue of ad hoc treasury bills by the Government of India as a funding instrument

was abolished with the introduction of the Ways And Means agreement.

Recent Regulatory Changes

Some of the important regulatory changes in Indias debt market include:

Introduction of the auction system for Government securities.

Introduction of DVP system for dated securities and T-bills.


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Introduction of Primary Dealers (PDs) in March 1996, with six PDs offering

twoway quotes with bidding commitments in the auction of dated

securities and T-bills. The RBI also issued guidelines for Satellite Dealers in

December 1996, to impart greater momentum in terms of increased liquidity

and turnover. However, they are yet to commence operations.

Repo facility has been extended to all dated Government securities and

Treasury bills


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CHAPTER-4

THEORY AND CONCEPTS OF THE PROJECT

Debt market :definition

The debt market is the market for trading debt securities. The debt market thus involvescorporate bonds, government bonds, municipal bonds, negotiable certificates of deposit,and various money market investments. The debt market also includes individual loansbought from lenders and often packaged together in large amounts. The debt marketincludes the primary market, where debts are first sold to the public; and the secondarymarket, where investors sell debts to each other afterward. On the secondary debtmarket, debts can be sold on exchanges or on the over-the-counter market, but mostare traded over the counter. Many debts are also packaged together into mutual funds.There are publications that publish the daily prices of bonds on the debt market.

CLASSIFICATION OF DEBT MARKET

Indian debt market can be classified mainly into two categories:

Government Securities Market (G-Sec Market): It consists of central and

state government securities. It means that, loans are being taken by the central and

state government. It is also the most dominant category in the India debt market.

Bond Market:It consists of Financial Institutions bonds, Corporate bonds anddebentures and Public Sector Units bonds. These bonds are issued to meet financial

requirements at a fixed cost and hence remove uncertainty in financial costs.

Basically the Indian debt market is being divided into five types.The following diagram

will clarify the classification as shown below:

DEBTMARKET

GOVT.BOND

MARKET

CORP.BOND

MARKET

CONSUMER

DEBTMARKET

FIXEDINCOMEMARKET

MONEYMARKET
http://www.investorglossary.com/debt-market.htmhttp://www.investorglossary.com/debt.htmhttp://www.investorglossary.com/bonds.htmhttp://www.investorglossary.com/deposit.htmhttp://www.investorglossary.com/money-market.htmhttp://www.investorglossary.com/debt.htmhttp://www.investorglossary.com/bonds.htmhttp://www.investorglossary.com/bonds.htmhttp://www.investorglossary.com/debt.htmhttp://www.investorglossary.com/money-market.htmhttp://www.investorglossary.com/deposit.htmhttp://www.investorglossary.com/bonds.htmhttp://www.investorglossary.com/debt.htmhttp://www.investorglossary.com/debt-market.htm


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1.FIXED INCOME MARKET

Fixed income refers to any type of investment which is not equity, that obligates the

borrower/issuer to make payments on a fixed schedule, even if the number of the

payments may be variable.

For example, if you lend money to a borrower and the borrower has to pay interest once

a month, you have been issued a fixed-income security. Governments issuegovernment

bonds in their own currency and sovereign bonds in foreign currencies. Local

governments issue municipal bonds to finance themselves. Debt issued by government-

backed agencies is called an agency bond. Companies can issue a corporate bond or

get money from a bank through a corporate loan ("preferred stock" can be "fixed

income" in some contexts). Securitized bank lending (e.g. credit card debt, car loans or

mortgages) can be structured into other types of fixed income products such as ABS

asset-backed securities which can be traded on exchanges just like corporate and

government bonds.

The term fixed income is also applied to a person's income that does not vary with

each period. This can include income derived from fixed-income investments such as

bonds and preferred stocks or pensions that guarantee a fixed income. When

pensioners or retirees are dependent on their pension as their dominant source of

income, the term "fixed income" can also carry the implication that they have relatively

limited discretionary income or have little financial freedom to make large expenditures.

Fixed-income securities can be contrasted with equity securities that create no

obligation to pay dividends, such as stocks. In order for a company to grow as a

business, it often must raise money; to finance an acquisition, buy equipment or land or

invest in new product development. Investors will give money to the company only if

they believe that they will be given something in return commensurate with the risk

profile of the company. The company can either pledge a part of itself, by

giving equity in the company (stock), or the company can give a promise to pay

regular interest and repay principal on the loan (bond, bank loan, or preferred stock).

2.CONSUMER DEBT MARKET

In economics,consumer debt is outstanding debt of consumers, as opposed to

businesses or governments. In macroeconomic terms, it is debt which is used to

fundconsumption rather than investment
http://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Equityhttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Sovereign_bondhttp://en.wikipedia.org/wiki/Municipal_bondhttp://en.wikipedia.org/wiki/Agency_bondhttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/w/index.php?title=Corporate_loan&action=edit&redlink=1http://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Asset-backed_securityhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Pensionshttp://en.wikipedia.org/wiki/Discretionary_incomehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Macroeconomicshttp://en.wikipedia.org/wiki/Consumption_(economics)http://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Consumption_(economics)http://en.wikipedia.org/wiki/Macroeconomicshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Discretionary_incomehttp://en.wikipedia.org/wiki/Pensionshttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Asset-backed_securityhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/w/index.php?title=Corporate_loan&action=edit&redlink=1http://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Agency_bondhttp://en.wikipedia.org/wiki/Municipal_bondhttp://en.wikipedia.org/wiki/Sovereign_bondhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Equityhttp://en.wikipedia.org/wiki/Investment


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The most common form of consumer debt is credit card debt, payday loans, and

other consumer finance, which are often at higher interest rates than long term

secured loans, such as mortgages. The amount of debt outstanding versus the

consumer's disposable income is expressed as the Consumer Leverage Ratio. The

interest rate charged depends on a range of factors, including the economic climate,

perceived ability of the customer to repay, competitive pressures from other lenders,

and the inherent structure and security of the credit product. Rates generally range from

0.25 percent above base-rate, to well into double figures. Consumer debt is also

associated with Predatory lending, although there is much debate as to what exactly

constitutes predatory lending.

3.CORPORATE BOND MARKET

A corporate bond is a bond issued by a corporation. It is a bond that a corporation

issues to raise money in order to expand its business.[1]The term is usually applied to

longer-term debt instruments, generally with a maturity date falling at least a year after

their issue date. (The term "commercial paper" is sometimes used for instruments with a

shorter maturity.)

Sometimes, the term "corporate bonds" is used to include all bonds except those issued

by governments in their own currencies. Strictly speaking, however, it only applies to

Others, 1.6T-Bills, 22.1

Corporate bonds

3.6

govt.-sec, 72.7

% Investment in debt instruments (march2006)
http://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Credit_card_debthttp://en.wikipedia.org/wiki/Payday_loanhttp://en.wikipedia.org/wiki/Consumer_financehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Consumer_Leverage_Ratiohttp://en.wikipedia.org/wiki/Predatory_lendinghttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporate_debt#cite_note-0http://en.wikipedia.org/wiki/Corporate_debt#cite_note-0http://en.wikipedia.org/wiki/Corporate_debt#cite_note-0http://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Corporate_debt#cite_note-0http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Predatory_lendinghttp://en.wikipedia.org/wiki/Consumer_Leverage_Ratiohttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Consumer_financehttp://en.wikipedia.org/wiki/Payday_loanhttp://en.wikipedia.org/wiki/Credit_card_debt


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those issued by corporations. The bonds of local authorities and supranational

organizations do not fit in either category.[clarification needed]

Corporate bonds are often listed on major exchanges (bonds there are called "listed"

bonds) and ECNs like Bonds.com and MarketAxess, and

the coupon (i.e. interestpayment) is usually taxable. Sometimes this coupon can be zero

with a high redemption value. However, despite being listed on exchanges, the vast

majority of trading volume in corporate bonds in most developed markets takes place in

decentralized, dealer-based, over-the-counter markets.

Some corporate bonds have an embedded call option that allows the issuer to redeem

the debt before its maturity date. Other bonds, known as convertible bonds, allow

investors to convert the bond into equity.

4.Government bond market

Government debt (also known as public debt, national debt, sovereign

debt)[1][2]is money (or credit) owed by a central government. In the US, "government

debt" may also refer to the debt of a Government bondmarket

municipal or local government. By contrast, annual government deficit refers to the

difference between government receipts and spending in a single year, that is, the

increase of debt over a particular year.

As the government draws its income from much of the population, government debt is

an indirect debt of the taxpayers. Government debt can be categorized asinternal debt,

owed to lenders within the country, and external debt, owed to foreign lenders.

Governments usually borrow by issuing securities, government bondsand bills. Less

creditworthy countries sometimes borrow directly from supranational institution

A broader definition of government debt considers all government liabilities, including

future pension payments and payments for goods and services the government has

contracted but not yet paid.Another common division of government debt is by duration

until repayment is due. Short term debt is generally considered to be one year or less,

long term is more than ten years.Medium term debt falls between these two boundaries.
http://en.wikipedia.org/wiki/Wikipedia:Please_clarifyhttp://en.wikipedia.org/wiki/Wikipedia:Please_clarifyhttp://en.wikipedia.org/wiki/Wikipedia:Please_clarifyhttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Electronic_communication_networkhttp://en.wikipedia.org/wiki/Coupon_(bond)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Call_optionhttp://en.wikipedia.org/wiki/Convertible_bondhttp://en.wikipedia.org/wiki/Government_debt#cite_note-0http://en.wikipedia.org/wiki/Government_debt#cite_note-0http://en.wikipedia.org/wiki/Government_debt#cite_note-0http://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Central_governmenthttp://en.wikipedia.org/wiki/Municipal_governmenthttp://en.wikipedia.org/wiki/Local_governmenthttp://en.wikipedia.org/wiki/Deficithttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Internal_debthttp://en.wikipedia.org/wiki/External_debthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Supranationalismhttp://en.wikipedia.org/wiki/Supranationalismhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/External_debthttp://en.wikipedia.org/wiki/Internal_debthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Deficithttp://en.wikipedia.org/wiki/Local_governmenthttp://en.wikipedia.org/wiki/Municipal_governmenthttp://en.wikipedia.org/wiki/Central_governmenthttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Government_debt#cite_note-0http://en.wikipedia.org/wiki/Government_debt#cite_note-0http://en.wikipedia.org/wiki/Convertible_bondhttp://en.wikipedia.org/wiki/Call_optionhttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Coupon_(bond)http://en.wikipedia.org/wiki/Electronic_communication_networkhttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Wikipedia:Please_clarify


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According to the sources from NSE , again govt.securities lead the debt market in

India.

5.MONEY MARKET

The money market is a component of the financial markets for assets involved in short-

term borrowing and lending with original maturities of one year or shorter time frames.

Trading in the money markets involves Treasury bills, commercial paper, bankers'

acceptances, certificates of deposit, federal funds, and short-lived mortgage-and asset-

backed securities.[1]It provides liquidity funding for the global financial system.

Common money market instruments:

Certificate of deposit - Time deposits, commonly offered to consumers by banks,thrift institutions, and credit unions.

Repurchase agreements - Short-term loansnormally for less than two weeks and

frequently for one dayarranged by selling securities to an investor with an

agreement to repurchase them at a fixed price on a fixed date. Commercial paper - Unsecured promissory notes with a fixed maturity of one to 270

days; usually sold at a discount from face value.

Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located

outside the United States.

6% 3%

15%

4%

68%

4%

Investment criteria in debt

instruments(march 2008)

PSUbonds

corp.bonds

state loans

T-bills

Govt.bonds

others
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Federal agency short-term securities - (in the U.S.). Short-term securities issued

by government sponsored enterprises such as the Farm Credit System, the Federal

Home Loan Banks and theFederal National Mortgage Association.

Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other

depository institutions at the Federal Reserve; these are immediately available funds

that institutions borrow or lend, usually on an overnight basis. They are lent for

the federal funds rate.

Municipal notes - (in the U.S.). Short-term notes issued by municipalities in

anticipation of tax receipts or other revenues.

Treasury bills - Short-term debt obligations of a national government that are

issued to mature in three to twelve months. For the U.S., see Treasury bills.

Money funds - Pooled short maturity, high quality investments which buy money

market securities on behalf of retail or institutional investors. Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the

reversal of the exchange of currencies at a predetermined time in the future.

Short-lived mortgage- and asset-backed securities
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Debt market instrument:definitionA paper or electronic obligation that enables the issuing party to raise fundsby promising to repay a lender in accordance with terms of a contract. Types of debtinstruments include notes, bonds, certificates, mortgages, leases or other agreementsbetween a lender and a borrower.

Debt instruments are a way for markets and participants to easily transfer the ownershipof debt obligations from one party to another. Debt obligation transferability increasesliquidity and gives creditors a means of trading debt obligations on the market. Withoutdebt instruments acting as a means to facilitate trading, debt is an obligation from oneparty to another. When a debt instrument is used as a medium to facilitate debt trading,debt obligations can be moved from one party to another quickly and efficiently.

VARIOUS DEBT INSTRUMENTS

Types of Debt Instruments

The various instruments of debt can be classified into long term and short term debtdepending on the tenure for which the amount has been raised or the period ofrepayment. The various instruments under each category are mentioned below.


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1.Long-term debt

Debt instruments can be further classified into the following categories based on thedifferent characteristics with which they are floated in the market:

DebenturesBonds

DebenturesMain characteristics

They are fixed interest debt instruments with varying period of maturity. Can either be placed privately or offered for subscription. May or may not be listed on the stock exchange. If listed on the stock exchanges, they should be rated prior to the listing by any of

the credit rating agencies designated by SEBI. When offered for subscription a debenture redemption reserve has to be

maintained. The period of maturity normally varies from 3 to 10 years and may also be more

for projects with a high gestation period.

Advantages

1. Control of company is not surrendered to debenture holders because they donot have any voting rights.

2. Trading on equity is possible as debenture holders get a lower rate of returnthan the earnings of the company.3. Interest on debenture is an allowable expenditure under income tax act, henceincidence of tax on the company is decreased.4. Debenture can be redeemed when company has surplus funds.

Disadvantages

1. Cost of raising capital through debentures is high of high stamps duty.2. Common people cannot buy debenture as they are of high denominations.3. They are not meant for companies earning greater than the rate of interest

which they are paying on the debentures.

BONDS:

Bonds may be of many types - they may be regular income, infrastructure, tax savingor deep discount bonds. These are financial instruments with a fixed coupon rate and adefinite period after which these are redeemed. The fundamental difference betweendebentures and bonds is that the former is normally secured whereas the latter is not.


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Hence in general bonds are issued at a higher interest rate than debentures. Thisavenue of financing is mainly availed by highly reputed corporate concerns and financialinstitutions.

The three main kinds of instruments in this category are as follows:

Fixed rate

Floating rate

Discount bonds

Characteristics of bonds:

The bonds may also be regular income with the coupons being paid at fixed

intervals or cumulative in which the interest is paid on redemption.

Unlike debentures, bonds can be floated with a fixed interest or floating interestrate. They can also be floated without interest and are called discount bonds asthey are issued at a discount to the face value and an investor is paid the facevalue on redemption.and if offered for longer terms are known as deep discountbonds.

The main advantage with interest bearing bonds is the floating interest rate,which is stipulated based on certain mark-up over stock market index or somesuch index.

From the point of view of the investor bonds are instruments carrying higher risk

and higher returns as compared to debentures. This has to be kept in mind while floating bond issues for financing purposes.

With the current buoyancy in capital markets for equity instruments the demandfor corporate bonds is low.

Advantages of investing in bonds:

Bonds are predictable. You know how much interest you can expect to receive,how often you'll receive it, and when your principal (the bond's face value) will be

repaid (maturity date).

Bonds are more steady then stocks (which can fluctuate wildly short-term).Nervous

investors usually sleep better by buying bonds instead of equity investments.


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People on a fixed income and/or in retirement will receive a predictable amountof regular income from bonds.

The interest rates paid by bonds typically exceed those paid by banks on savingsaccounts, especially short-term bonds.

Disadvantages of bonds:

Companies and municipalities can and do go bankrupt, and if they do, yourbonds will lose value and possibly even become worthless.

Long-term bonds will have your money tied up in low yielding bonds shouldinterest rates go up.

Unlike stocks, bonds don't offer the possibility of high long-term returns. Youngerinvestors and those with several years to go until retirement would be betterserved by limiting their bond purchases and opting for equity buys instead

2. Medium Term Loans

Medium term loans refer to loans extended for a period of between 2-5 years. Thedifferent purposes for which these loans are generally sought include:

o Short gestation projects: The short gestation projects could be for

purchase of balancing equipment, for incremental expansion of capacity.o Refinancing of loans in case of very long projects where the repayment of

the term loans might occur prior to sufficient cash flows being generatedby the project.

o For meeting any other medium term shortfall in funding arising out of anacquisition or bulleted repayment of a large loan, etc

The procedures for availing medium term loans, where required for short gestationprojects, is largely similar to those required for project finance. In case of meeting amedium term mismatches not linked to a project or equipment, the financing decisionwould be on the basis of a cash flow analysis indicating the need for such medium term

funding and an analysis of overall profitability and financial to the business to providelender comfort. Other than these aspects, the procedures for availing Medium Termloans follows the requirements sought by the lenders in case of Project financing/ Longterm lending.


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3.Short term debt

Short Term debt generally refers to debt raised for a period of less than a year. It canbe classified into market instruments and financial assistance granted by Term LendingInstitutions, Commercial Banks and Non Banking Finance Companies (NBFC) catering

to the short term credit needs of the business entities.

a) Commercial Papers (CPs)

Commercial paperis an unsecured promissory note with a fixed maturity of 1 to 270days. Commercial Paper is a money-market security issued (sold) by large banks andcorporations to get money to meet short term debt obligations (for example, payroll),and is only backed by an issuing bank or corporation's promise to pay the face amounton the maturity date specified on the note. Since it is not backed by collateral, only firmswith excellent credit ratings from a recognized rating agency will be able to sell theircommercial paper at a reasonable price. Commercial paper is usually sold at a discountfrom face value, and carries higher interest repayment rates than bonds

Advantages of commercial paper:

High credit ratings fetch a lower cost of capital. Wide range of maturity provide more flexibility. It does not create any lien on asset of the company. Tradability of Commercial Paper provides investors with exit options.

Disadvantages of commercial paper:

Its usage is limited to only blue chip companies. Issuances of Commercial Paper bring down the bank credit limits. A high degree of control is exercised on issue of Commercial Paper. Stand-by credit may become necessary

b)Certificate of Deposits: A certificate of deposit ("CD") is a short to medium-term,

FDIC insured investment available at banks and savings and loan institutions.

Customers agree to lend money to the institutions for a certain amount of time. In

exchange for doing so, the customers is paid a predetermined rate of interest. Often,banks will charge a penalty fee if the money is withdrawn from the CD before it

matures.
http://en.wikipedia.org/wiki/Unsecured_debthttp://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Payrollhttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Credit_ratinghttp://en.wikipedia.org/wiki/Credit_rating_agencyhttp://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Credit_rating_agencyhttp://en.wikipedia.org/wiki/Credit_ratinghttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Payrollhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Unsecured_debt


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Credit Risk: Low. Treasury bills are backed by the full faith and credit of the U.S.Treasury.

Liquidity Risk: Low. Treasury bills are one of the most liquid securities in themarket.

Market Risk: Low. The short duration allows for less price volatility.

Advantages: Treasury bills are very liquid; they have active primary and secondarymarkets and high availability.

Disadvantages: Low relative yield.

d) Inter-corporate Deposits (ICDs)Inter-Corporate Deposits refers to unsecured short term funding raised by corporates

from other corporates. This is a form of disintermediated financing, where corporateswith surplus funding directly lend to those in need of funding of such funds and thereby

save on the spreads that banks would have charged in borrowing from one to lend to

the other.

In theory this is an efficient means of channelising investment. However, the experiencein the Indian context has been quite poor. The use of ICDs was extremely popularduring the early nineties when a number of companies raised money at hefty premiumsfrom the public without actually identifying projects for investments. These sums werethen deployed in the ICDs market where the borrowers more often than not invested in

the booming financial assets (shares) or real estate. Often monies were lent to groupcompanies for propping up the shares of different companies of the group. The end ofthe boom in financial and real assets saw significant amounts of defaults in ICDs and avirtual closure of the market.

4. Working capital:

a)cash credit: A cash credit is a short-term cash loan to a company. A bank provides

this type of funding, but only after the required security is given to secure the loan. Once

a security for repayment has been given, the business that receives the loan can

continuously draw from the bank up to a certain specified amount. -prearranged loan

that a business does not have to take until it is needed.

b)working capital loan:A loan whose purpose is to finance everyday operations of a

company.

A working capital loan is not used to buy long term assets or investments. Instead it's

used to clear up accounts payable, wages, etc.


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c)bills financing:A legislative bill providing money for the public treasury.There aremany types of bills financing like treasury bills,etc.

d)export finance:export financing describes the activity of governments helpingcompanies by financing thier export activities. they offer low interest rate loans that thecompany could otherwise not obtain at a rate lower than market price. export financingpromotes trade as it provides an opportunity for those organisations who wouldotherwise not have been able to participate in trade activities because of financialconstraints.

e)warehouse receipts: A warehouse receipt is a document that provides proof of

ownership of commodities (e.g., bars of copper) that are stored in a warehouse, vault,

or depository for safekeeping.Warehouse receipts may be negotiable or non-negotiable.

Negotiable warehouse receipts allow transfer of ownership of that commodity without

having to deliver the physical commodity..Most warehouse receipts are issued innegotiable form, making them eligible as collateral for loans. Non-negotiable receipts

must be endorsed upon transfer. Warehouse receipts are regulated by the Uniform

Warehouse Receipts Act.


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CHAPTER -5

DATA ANALYSIS AND INTERPRETATION

After analyzing the secondary data available with the help of various pie charts andtable no.-1, the following interpretations has been made which strongly clarifies theposition of the debt market in India and would help the investors to choose the best debtinstruments to invest in through which they could get the most profitable returns.

1.Insurance is a good source of debt market but there are many types of debt marketsin India like money market , corporate bond market , govt. bond market , consumer debtmarket and fixed - income market.

2.From the data available , it is clear that Govt.-sec dominate the debt market in India.About 70-75% of the funds are invested in Govt.securities.

3.From the above bar graph , it will be clear that there are various types of risksinvolved in all debt instruments but Govt.-securities involve very low risks whether it ismarket risk or credit risk or interest rate risk .

0

5

10

15

20

25

Govt.-sec Corp.bonds State loans Others

Risks involved in Debt instruments

inflation

int.rate risk

market risk

credit risk


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How debt market can be a good investment of all others?

There are many reasons on the basis of which we can say that debt market is the bestinvestment of all other investments through which you can gain more and more returns .Debtmarket is a good option for those who are interested in investing in both forms of bonds , govt.

bonds as well as corporate bonds thus involving a little bit of risk along with a sort of security.

Since the Government Securities are issued to meet the short term and long term financial

needs of the government, they are not only used as instruments for raising debt, but have

emerged as key instruments for internal debt management, monetary management and short

term liquidity management.

DEBT MARKET IS THE BEST INVESTMENT

DEBT MARKET IS A BOON TO ALL INVESTORS :

Reduction in the borrowing cost of the Government and enable mobilization of resourcesat a reasonable cost.

5

10

15

20

25

30

risk security borrowing

rate

volatility tax-saving liquidity burden on

govt


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Provide greater funding avenues to public-sector and private sector projects and reducethe pressure on institutional financing.

mobilization of resources by unlocking illiquid retail investments like gold. Reduction in risk and interest rates of borrowing in comparison to other markets Development of the whole economy.

Debt instruments helps in tax savings as it carry a higher taxshield than others.

Financing the development activities of the Government. Paving the various ways for both the longterm and short- term investments for the

common man also. Venture financing for new entrepreneurs for promising projects with high potential. Debt market fulfils the needs of all types of investors whether big or small,whether short-

term or longterm. Lessons the burden of govt. as corporate bonds are involved. It increases the liquidity The liquidity of the Indian debt market has helped both the

market as well as the various companies operating in it.

Due to volatility in equity market, investors are more inclined to park their surplusestowards debt market and mutual funds.

Thus, in the end , it is clear that without the debt market no financial system can be successfuland no overall growth of the economy is possible .The debt market is a boon to all types ofinvestors as different investors have there own interests and objectives . The new reforms in theIndian debt market has revolutionized the whole financial market of India.


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FINDINGS

1.With the help of data available from the Pie- charts ,it is found that most of the investments are

done in govt. securities (about 70-75%) due to low risks and high taxsavings .Govt.-secremained the major trading area in debt market.

2. Bonds are more preferred than loans given by banks as they are more secure and carry low

risk. From the table no. -1, it is easy for any investor to understand to choose the best

instrument for his investment according to the per requirements.

3 .Govt.securities is the largest investment area in India because the corporate bonds carry

high rate of interests due to the risk of getting bankrupt.

4.Money- market instruments are more popular than the other debt instruments as they are

involved in shortterm lending and borrowing.

5. Moneymarket instruments involve many instruments like commercial paper, certificates of

deposits, treasury bills , short- lived mortgages .

6.The bond market is most suitable to meet the financial requirements at a fixed cost which

helps to remove uncertainty in financial costs.

7.Different types of debt instruments are available in the Indian market to meet the needs and

expectations of the various investors.

8. Bonds are more secure than debentures but receive a lower rate of interest.

9.Insurance is a good source of debt market but many types of debt markets are involved likemoney market , bond market , govt.securities , etc .One should do the in-depth analysis beforeinvesting in any instrument.

10.Last but not the least that debt market is the best option for those who are interested in highreturns but with low risks and low interest rates.


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RECOMMENDATIONS

1. Bharti -AXA life insurance company must give more advertisements on electronic

media and print media, as it help in enhance its goodwill and more people are willing towork with reputed companies, through proper advertisement it become easy to sell the

product.

2. An insurance company must work with honesty to win the confident of its agent and

general public. Duration of training must be reduced as in these days people have no

extra time. Fees charged by companies from candidate for IRDA exam and training

should reduce.

3. Many other extra facilities must be provide to agent to attract them such local and

foreign trips, special price on achieving a target, open bank account at free of cost,

Bharti-AXA Life Insurance Company must organize more and more seminars and also

participate in the job trade fairs to find out more candidates. Increase the commission of

agents.

4. Company must relic to candidate or other people that they are doing a social service

for the welfare of society. Better career opportunity must be provided to an adviser,

such as on role job, promotion etc.

5. A special function must organize time to time in which the special prizes distribute

among those agent who perform well. The duration of the process of recruitment and

selection is too long (one and half month), during this process mostly candidate lossthere interest, so there is an urgent need to reduce the duration of this period.

6. Reduce the minimum premium amount it will help company to attract the agent of

other company, as it increases the scope of market of its agent.


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Advantages of investing in debt market:

1.ASSURED RETURNS:The biggest advantage of investing in Indian debt market is itsassured returns

2.RISK FREE: The returns that the market offer is almost risk-free (though there isalways certain amount of risks, however the trend says that return is almost assured).

3. GOVT.-SEC. SAFER: Safer are the government securities. On the other hand, thereare certain amounts of risks in the corporate, FI and PSU debt instruments. However,investors can take help from the credit rating agencies which rate those debtinstruments. The interest in the instruments may vary depending upon the ratings.

4.HIGH LIQUIDITY: Another advantage of investing in India debt market is its highliquidity. Banks offer easy loans to the investors against government securities.

Limitations of investing in debt market:

As there are several advantages of investing in India debt market, there are certaindisadvantages as well.

1.LOW RETURNS: As the returns here are risk free, those are not as high as theequities market at the same time. So, at one hand you are getting assured returns, buton the other hand, you are getting less return at the same time.

2 LESS RETAIL PARTICIPATION:.Retail participation is also very less here, though

increased recently.3.ISSUES OF LIQUIDITY: There are also some issues of liquidity and price discovery

as the retail debt market is not yet quite well developed.

4. MORE PRONE TO GOVT.-SEC- Most of the investments is made in govt.-sec,corporate sector is neglected due to high risks.


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EXCLUSIONS

Corporate bonds maturing less than 18 months aftersettlement date. Maturity is

defined as the legal maturity of the offering.

If the offer price is not disclosed 100% is assumed with the exception of zero coupon

bonds which become rank ineligible.

Non-underwritten deals are excluded. Best efforts deals as they relate to MTNs are

included.

Bond exchange offers where existing debt is replaced by new debt are not rank

eligible unless new money is raised. If the new market offered exceeds the debt itreplaces then the difference of the proceeds is rank eligible.

Certificates of Deposit, loan-style FRNs, and money market transactions are excluded

unless otherwise specified.

Auctions and non-underwritten government are debt excluded.


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CONCLUSION

Earlier Life Insurance was taken as an option for risk cover or a tax saving by people.

But in the present scenario the mind set and outlook of people has changed a lot. They

now consider Life insurance as an investment opportunity in long run. Under IRDA

guidelines, traditional plans have to invest at least 85% in debt instruments which

results in low returns. Since Ulips have been introduced, Ulips invest in market linked

instruments with varying debt and equity proportions.Debt market in India has been

categorized into many segments-money-market, bond market, G-Sec., etc. Various

types of debt instruments are available in the debt market like treasury-bills ,

commercial papers , certificate of deposits, PSU bonds, corporate bonds , govt. bonds

,debentures, bank loans and many others .In India, G-Securities is the largest and mostpopular investment area of the debt market as they carry low risks with good returns

.Central and State govts are the major participants and SEBI and RBI are the major

regulators of the debt market in India .

To conclude , the debt market is the best option of all other types of investments in

terms of security , lower borrowing rate ,liquidity and taxing-savings .The debt market is

the heart and blood of the Indian market .


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BIBLIOGRAPHY

1. Prepared by experts , guided by PTU (SIM of MBA -511) Published by Excel Books ,

New Delhi ,2008, Chapter -9, Pgs 129-149

2. http://bseindia.com/about/debtseg.asp/www.google.com

2 .http:// www.axabharti.com/www.google.com

3. http://economictimes.indiatimes.com

4. http://www.irdaindia.org/ www.google.com

5 .http://business.mapsofindia.com/indiamarket/debt.html/www.google.com

6. http://en.wikipedia.org/wiki/bond-market/www.google.com
http://www.axabharti.com/http://www.axabharti.com/http://www.google.com/http://www.google.com/http://www.axabharti.com/

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