Examples of Debt Instrument
1.
Governement Bonds
Government bonds are debt securities issued by the government, offering regular interest payments and repayment at maturity. They are considered low-risk investments backed by the government’s creditworthiness.
Short-term debt instruments issued by the government with maturities of up to one year (e.g., 91 days, 182 days, 364 days).
Long-term debt instruments with maturities of more than one year, such as 5-year, 10-year, or 30-year bonds.
Bonds issued by the government linked to the price of gold, with periodic interest payouts.
Bonds issued by individual states to meet their development needs.
2.
Corporate Bonds
Corporate bonds are debt securities issued by companies to raise capital, offering periodic interest payments and repayment at maturity. They typically carry higher risk than government bonds but offer higher returns.
Unsecured corporate debt that is not backed by physical assets, often issued by large companies.
Corporate bonds that are backed by a company’s assets.
Corporate bonds that cannot be converted into equity shares but offer fixed interest.
Bonds issued by municipalities to fund public projects like infrastructure or development works.
2.
Corporate Bonds
Corporate bonds are debt securities issued by companies to raise capital, offering periodic interest payments and repayment at maturity. They typically carry higher risk than government bonds but offer higher returns.
3.
Inflation Indexed Bonds
Inflation-Indexed Bonds in India are designed to protect investors from inflation by adjusting either the principal or interest based on the inflation rate, ensuring that returns are aligned with the real value of money, particularly against rising prices.
Government bonds linked to CPI, offering inflation-protected returns for retail investors.
Issued by RBI, with principal adjusted to WPI to safeguard against inflation.
Bonds with a fixed interest rate, where the principal adjusts to inflation, protecting its value at maturity.
Bonds for large investors, linked to inflation indices like CPI or WPI, providing a hedge against rising prices.
4.
Masala Bonds
Masala Bonds are rupee-denominated bonds issued outside India, allowing Indian entities to raise funds from foreign investors without currency risk, as the repayment is in Indian rupees.
Rupee-Denominated Debt: Bonds issued in foreign markets but denominated in Indian rupees, protecting the issuer from exchange rate fluctuations.
Offshore Issuance: Indian companies and institutions can raise capital from global investors without exposure to foreign exchange risk.
International Appeal: Attracts foreign investors seeking exposure to Indian markets, while supporting India’s infrastructure and growth needs.
Diversified Investor Base: Provides Indian issuers access to a wider pool of global investors, reducing dependency on domestic markets.
4.
Masala Bonds
Masala Bonds are rupee-denominated bonds issued outside India, allowing Indian entities to raise funds from foreign investors without currency risk, as the repayment is in Indian rupees.
5.
Fixed Maturity Plans (FMPs)
Fixed Maturity Plans (FMPs) are close-ended debt mutual funds with a fixed tenure, offering predictable returns by investing in fixed-income securities that mature around the same time as the plan.
Defined Tenure: FMPs have a fixed maturity period, typically ranging from a few months to a few years.
Investments in Debt Instruments: FMPs invest in fixed-income securities like bonds, debentures, and money market instruments that align with the plan’s maturity.
Tax Efficiency: Long-term FMPs offer tax benefits with indexation, reducing the overall tax liability on returns.
Low Risk: FMPs aim to provide stable returns with minimal risk, as the underlying securities are held until maturity.
6.
Perpetual bonds
Perpetual bonds are debt instruments with no fixed maturity date, offering continuous interest payments to investors indefinitely. They are often issued by banks or financial institutions to raise capital while meeting regulatory requirements.
No Maturity Date: Perpetual bonds have no fixed maturity, allowing interest payments to continue indefinitely.
Regular Interest Payments: Investors receive regular interest payments at higher rates compared to standard bonds.
Callable Option: Many include a callable feature, allowing issuers to redeem the bonds after a specified period.
Higher Risk: They carry higher risk due to uncertain future cash flows and lack of a maturity date.
6.
Perpetual bonds
Perpetual bonds are debt instruments with no fixed maturity date, offering continuous interest payments to investors indefinitely. They are often issued by banks or financial institutions to raise capital while meeting regulatory requirements.
7.
Floating Rate Bonds
Bonds where the interest rate is variable and often linked to a benchmark, like the MIBOR (Mumbai Interbank Offer Rate).
Variable Interest Rates: Interest rates adjust periodically based on a benchmark rate, allowing potential higher returns in rising rate environments.
Regular Interest Payments: Payments are made at set intervals based on the current interest rate.
Reduced Interest Rate Risk: Less sensitive to interest rate fluctuations due to their rate adjustments.
Inflation Hedge: They can help maintain purchasing power as interest payments may increase with inflation.
8.
Zero Coupon Bonds
Bonds are issued at a discount to their face value and do not make periodic interest payments but offer a lump sum on maturity.
No Periodic Interest Payments: Zero coupon bonds do not pay regular interest; instead, they are issued at a discount and redeemed at face value at maturity.
Fixed Maturity Value: Investors receive a predetermined lump sum at maturity, which is the face value of the bond.
Long-Term Investment: Typically issued for longer terms, ranging from several years to decades, making them suitable for long-term financial goals.
Tax Implications: While no interest is received until maturity, the difference between the purchase price and the face value is considered interest income and may be subject to taxation over the life of the bond.
8.
Zero Coupon Bonds
Bonds are issued at a discount to their face value and do not make periodic interest payments but offer a lump sum on maturity.