Bonds or Fixed Income Instruments are securities wherein Interest Payable and Tenure are fixed.
There are various types of fixed income instruments that include government securities (g-sec), commercial paper, debentures, treasury bills, tax free bonds, certificate of deposits, zero coupon bonds etcetera.
Equity gives you ownership whereas the fixed-income securities make you the creditor of the issuer.
The 3 most important components of these securities are Credit Quality, Yield and Maturity.
Credit quality is measurement of credit worthiness and ability to repay the borrowed money with the interest in timely manner. The credit quality is measured by Credit rating agencies.
Coupon is the rate of interest offered by a fixed income instrument at the face value.
Yield refers to the return (interest or dividend) on an investment to the investor on the current market price.
Yes, the coupon is calculated on the face value of the fixed income instrument whereas the yield is calculated on the current market price.
Face value is the Actual Price (Launch Price) of per units of Fixed Income Instrument.
Maturity is the End Date of payment, when investment amount is paid back with accrued interest.
Prices and yield works in opposite direction to each other. Fixed income instruments are traded in the secondary market (a market where you can buy and sell bonds even before maturity; post the bond get issued in primary market) and may get impacted by interest rates movements. As interest rates rise, bond prices fall and vise versa. But the same will not impact you if you hold onto your bond until maturity.
SEBI (Security Exchange Board of India)
As interest rates rise, bond prices fall and known as Discounting whereas if the interest rates fall the bond prices rises and known as Premium.
There are various type of risk involved while investing in fixed income instruments such as Interest-Rate Risk, Credit Risk and Reinvestment Risk. We should take due care while selecting a security.
Preference shareholders enjoy special rights. The dividend is fixed and is payable before any dividend is paid on equity shares. Also at the time of bankruptcy of the company, residual money is used to repay first to preference shareholders prior to the return of equity capital.
We bring in diverse set of bonds from primary as well as secondary market such as:
- Commercial Paper (C.P)
- Treasury Bills
- Government Securities
- Non-convertible Debentures
- State Development Loans
- PSU Bonds
- Tax Free Bonds
- Zero Coupon Bonds
- Preference Shares