Debt Market

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Instruments Of Debt Market

Submitted to:Submitted By:
Mrs. Gitanjali Gupta Sumeet Luhach
Asst. Professor B.B.A. 3rd Sem.
KAIMRoll No. 1125
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CHARKHI DADRI
Affiliated to M.D.U. Rohtak.

Debt Market

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 in a developing economy like India. India debt market is one of the largest in Asia. Like all other countries, debt market in India is also considered a useful substitute to banking channels for finance. The most distinguishing feature of the debt instruments of Indian debt market is that the return is fixed. This means, returns are almost risk-free. This fixed return on the bond is often termed as the 'coupon rate' or the 'interest rate'. Therefore, the buyer (of bond) is giving the seller a loan at a fixed interest rate, which equals to the coupon rate. Debt instruments are hard copy or electronic documents that commit the issuer to repaying a lender according to the terms and conditions of a contract. Classic examples of debt instruments allow the issuer to raise money with this type of financial arrangement, often for the purpose of funding a project or retiring one or more debts. Businesses and individuals may lend and borrow using a debt instrument as the document that gives form to the obligation.

Characteristics of Debt Market

1. Trading in long term debt instruments
2. Regulations by SEBI and RBI
3. Fixed Income
4. Segmentation
5. Direct Trading
6. Different participants
7. Diversified Market
8. Variety of instruments.

Importance of Debt Market

1. Debt market provides a higher liquidity in the market
2. Financing the development activities of the government 3. Implementation of monetary policy
4. Low borrowing cost
5. Less risk compared to equity market
6. Efficient location of resources
7. Reducing the pressure on institutional financing
8. Safety
9. Transparency in pricing and allocation funds
10. Share in GDP
11. Opportunity for investor to diversify
12. Better corporate governance

Market Participants

The market participants in the debt market are:
1. Central Governments, raising money through bond issuances, to fund budgetary deficits and other short and long term funding requirements. 2. Reserve Bank of India, as investment banker to the government, raises funds for the government through bond and t-bill issues, and also participates in the market through open- market operations, in the course of conduct of monetary policy. The RBI regulates the bank rates and repo rates and uses these rates as tools of its monetary policy. Changes in these benchmark rates directly impact debt markets and all participants in the market. 3. Primary dealers, who are market intermediaries appointed by the Reserve Bank of India who underwrite and make market in government securities, and have access to the call markets and repo markets for funds. 4. 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. 5. Public sector units are large issuers of debt securities, for raising funds to meet the long term and working capital needs. These corporations are also investors in bonds issued in the debt markets. 6. Corporate treasuries issue short and long term paper to meet the financial requirements of the corporate sector. They are also investors in debt securities issued in the market. 7. Public sector financial institutions regularly access debt markets with bonds for funding their financing requirements and working capital needs. They also invest in bonds issued by other entities in the debt markets. 8. Banks are the largest investors in the debt markets,...
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