Fixed Returns Glossary

A high-net-worth or sophisticated investor who meets SEBI’s income, net-worth, or experience thresholds, allowing access to private placements and alternative funds not open to retail investors

EXAMPLE

An investor needs to meet at least one of the following criteria to get an accredited investor certificate:

• High Income and Net Worth: He/she has annual income of more than INR 1 crore and a net worth of INR 5 crore (with at least INR 2.5 crore in financial assets)
• High Income Only: He/she has an annual income of INR 2 crore or more.
• High Net Worth Only: In the case of net worth only, he should have a total net worth of INR 7.5 crore or more, of which at least INR 3.75 crore should be in financial assets.

Please note that accreditation is granted by an Accreditation Agency (subsidiaries of stock exchanges/depositories), not applied for directly with SEBI.

Interest that has built up on a bond since the last coupon payment but hasn’t been paid yet; the buyer pays this to the seller when trading between coupon dates.

CALCULATION

An INR 1,000 face value bond with an 8% annual coupon (paid semi-annually) last paid interest 90 days ago.

Accrued interest = INR1,000 × 8% × (90/360) = INR 20.

A hands-on strategy where a fund manager or investor actively picks, trades, and times bonds to beat a benchmark index, rather than just tracking it.

COMPARISON

Active Bond Investing	Passive Bond Investing
Investors frequently adjust their portfolio based on market conditions.	Investors hold a portfolio that tracks a bond index with minimal buying and selling.

It refers to a financial institution that pools money from investors, and then its fund managers invest the pooled money into different securities like stocks, bonds, real estate, commodities, etc. The primary aim is to achieve optimal returns for investors, in exchange for a fee/commission.

The gradual write-off of a bond premium or discount over its life, adjusting the bond’s book value toward face value by maturity.

EXAMPLE

If you buy an INR 1,000 face value bond for INR 1,050 (INR 50 premium) with 5 years left, you amortise INR 10 per year (INR 50 ÷ 5), reducing the premium.

This is the total return you earn on a fixed deposit in one year. It includes the effect of compounding, which is expressed as a percentage.

It refers to a category of mutual fund that profits from temporary differences between an asset’s cash (spot) market price and derivatives (futures) market price. The fund usually buys a stock in the spot market and simultaneously also sells it in the futures market. This way, it is able to lock in a low-risk price spread and gain from the price difference.

The lowest price a seller is willing to accept for a bond in the market; the price you pay when buying.

EXAMPLE

If a bond’s bid price is INR 900 and ask price is INR 1,000, you buy at INR 1,000 (the ask), and the seller receives that amount.

A bond-like security backed by a pool of income-generating assets (like car loans, credit card receivables, or mortgages), where cash flows from those assets pay investors.

EXAMPLE

A bank bundles 1,000 car loans into an ABS; as borrowers repay their EMIs, those payments are passed through to ABS holders as interest and principal.

It refers to the total market value of investments managed by an AMC (asset management company) or a mutual fund scheme, on behalf of investors.

It refers to a system established by the RBI (Reserve Bank of India) to help customers resolve their complaints against banks and certain other regulated entities. If the concerned financial institution is not resolving your complaint, you can reach out to the ombudsman.

A barbell strategy is an investment approach where you invest only in short-term and long-term bonds. This helps balance liquidity and return potential.

EXAMPLE

A person who invests INR 5 lakh in 2-year bonds and INR 5 lakh in 10-year bonds instead of putting all INR 10 lakh into a 5-year bond is using a barbell strategy.

A basis point is one-hundredth of a percentage point. It is commonly used to describe tiny fluctuations in interest rates or bond yields.

EXAMPLE

• 1 bps = 0.01%
• 50 bps = 0.50%
• 100 bps = 1%

The highest price a buyer is willing to pay for a bond or any other security.

COMPARISON

Bid Price	Ask Price
Price offered by the buyer	Price asked by the seller

The difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept for a bond.

EXAMPLE

If the bid price is INR 995 and the ask price is INR 1,000, the bid-ask spread is INR 5.

A bond type issued to raise money for projects that protect oceans, marine ecosystems, and sustainable fishing.

EXAMPLE

Funds raised through a blue bond may be used to reduce marine pollution or restore coral reefs.

A bond is a fixed-income investment where you lend money to a government or company in exchange for regular interest payments and repayment of the principal at maturity.

EXAMPLE

If a person invests INR 1 lakh in a 5-year bond at 8% interest, then he’ll get INR 8,000 annually. He will also get his entire INR 1 lakh back at the maturity of that bond, i.e. after 5 years. Please note that returns from bonds are not guaranteed as they come with credit risk.

It is a strategy to gain profit from a price difference for the same or a similar bond across markets by buying and selling simultaneously, locking in the spread.

EXAMPLE

If the same bond trades at INR 998 on one platform and INR 1,005 on another, an investor may buy at the lower price and sell at the higher price.

An ETF (exchange-traded fund) that invests in a portfolio of bonds and can be bought or sold on the stock exchange like a share.

COMPARISON

Bond ETF	Individual Bond
Invests in multiple bonds	Invests in a single bond
Traded on stock exchanges	Bought individually
Offers diversification	Returns depend on one issuer

A strategy used to reduce the impact of changing interest rates by matching a portfolio's duration with a future financial goal.

EXAMPLE

If you need INR 20 lakh after 10 years, you can build a bond portfolio with a duration close to 10 years to reduce interest rate risk.

A legal agreement between the bond issuer and investors. It outlines the bond's terms, including interest payments, maturity, and the rights of bondholders.

EXAMPLE

The indenture specifies the coupon rate, payment schedule, maturity date, and what happens if the issuer defaults.

A bond index tracks the performance of a group of bonds and serves as a benchmark for investors and fund managers.

EXAMPLE

A government bond index may track the performance of several government securities with different maturities.

The strategy of building a bond ladder by investing in bonds that mature at different times.

As each bond matures, you reinvest the proceeds into a new long-term bond, keeping the ladder going.

It is where governments and companies issue new bonds and investors buy or sell existing bonds. You can purchase newly issued government bonds in the primary market or trade existing bonds in the secondary market.

A bond mutual fund pools money from many investors and invests it in a portfolio of bonds managed by a professional fund manager.

COMPARISON

Feature	Bond Mutual Fund	Individual Bond
Investment Structure	Invests in many bonds	Invests in one bond
Management	Professionally managed	Managed by the investor
Returns	Returns vary with the portfolio	Returns depend on the selected bond

Bond ratings indicate the creditworthiness of a bond issuer and the likelihood of timely repayment. They are assigned by credit rating agencies.

COMPARISON

Feature	Higher Rating	Lower Rating
Credit Risk	Lower credit risk	Higher credit risk
Yields	Usually lower yields	Usually higher yields

The process of estimating a bond's fair value based on its future interest payments, principal repayment, and current market interest rates. If market interest rates rise, the present value of a bond's future cash flows falls, reducing its value.

A bondholder is an individual or institution that owns a bond and is entitled to receive interest payments and the principal amount at maturity. If you buy a government bond, you become a bondholder until you sell it or it matures.

A process used to determine the issue price of securities by collecting bids from investors before the final price is decided.

EXAMPLE

If investors place bids between INR 980 and INR 1,000, the issuer uses these bids to determine the final issue price.

Investing in bonds that all mature around the same time, making it suitable for meeting a specific future financial goal.

EXAMPLE

If you need money after 8 years for your child's education, you can invest in bonds that all mature around the eighth year.

Call risk is the possibility that a bond issuer may repay the bond before its maturity, usually when interest rates fall.

EXAMPLE

If you own a bond paying 9% interest and market rates fall to 7%, the issuer may call back the bond and issue a new one at the lower rate.

A callable bond gives the issuer the right to repay the bond before its maturity date, subject to the terms mentioned in the bond agreement.

EXAMPLE

A 10-year callable bond may be redeemed by the issuer after 5 years if interest rates decline.

These FDs allow the depositor to withdraw money before maturity, but usually levy a penalty on the interest earned till that period of tenure.

Note: unlike a callable bond, where the option sits with the issuer, in a callable FD the option to exit early sits with the depositor.

Capital gains arise when you sell a bond for more than the price you paid to buy it.

EXAMPLE

If you buy a bond for INR 980 and sell it later for INR 1,020, your capital gain is INR 40.

The clean price is a bond's market price excluding any accrued interest. It is the price generally quoted in the market.

COMPARISON

Basis	Clean Price	Dirty Price
Accrued Interest	Excludes accrued interest	Includes accrued interest
Meaning	Usually the quoted price	Actual amount paid by the buyer

It's an asset pledged by a borrower as security when taking a loan. In case the borrower fails to make repayments/defaults, the lender has the right to sell the pledged asset (collateral) to recover the outstanding dues.

A security created by pooling together different debt assets, such as loans or bonds, and selling them to investors.

EXAMPLE

A financial institution may combine home loans and corporate loans into a CDO, allowing investors to earn returns from the repayments.

This is the interest earned not only on the principal amount but also on the interest accumulated over time.

EXAMPLE

If your FD earns quarterly compound interest, then each quarter's interest also starts earning interest (apart from the principal itself).

Concentration risk is the risk of investing too much money in a single issuer, sector, or type of investment.

EXAMPLE

If your entire bond portfolio consists of bonds issued by one company, a default by that company could significantly impact your investments.

A bond that can be converted into a predetermined number of the issuer's shares under specified conditions. Instead of receiving the principal at maturity, an investor may choose to convert the bond into company shares if the share price has increased.

A corporate bond is a debt security issued by a company to raise money for business needs such as expansion, operations, or refinancing existing debt.

EXAMPLE

A company may issue 5-year corporate bonds to fund the construction of a new manufacturing facility.

These funds invest at least 80% of their portfolio in AA+ or above-rated bonds. This higher credit quality of bonds usually also means lower default risk for the investor.

Unlike banks, these FDs are offered by companies or NBFCs, usually with a slightly higher interest rate but also higher risk. Regular bank FDs are insured for INR 5 lakh by DICGC; however, this protection is not available with corporate FDs.

A coupon is the interest a bond issuer pays to investors for lending money. It is usually paid at regular intervals until the bond matures.

EXAMPLE

A bond with a face value of INR 1,000 and an 8% coupon pays INR 80 in interest each year.

The coupon rate is the annual interest rate a bond pays, expressed as a percentage of its face value.

CALCULATION

Coupon Rate = (Annual Interest ÷ Face Value) × 100

A covenant is a condition included in a bond agreement that requires the issuer to follow certain rules or avoid specific actions to protect investors. A bond covenant may restrict the issuer from taking on excessive debt without the bondholder's approval.

When any of the agreed covenants between a debtor (borrower) and a creditor (lender) is violated, it is termed a covenant breach. It usually occurs when a party fails to uphold a promise or obligation outlined in a legal agreement.

A credit rating is an assessment of an issuer's ability to repay its debt on time. It helps investors understand the credit risk associated with a bond.

COMPARISON

Basis	Higher Rating	Lower Rating
Risk of Default	Lower risk of default	Higher risk of default
Yields	Generally lower yields	Generally higher yields

Credit risk is the possibility that a bond issuer may fail to pay interest or repay the principal as promised. If a company faces financial difficulties and misses an interest payment, investors are exposed to credit risk.

The difference between the yield of a corporate bond and the yield of a government bond with a similar maturity.

EXAMPLE

If a 5-year government bond yields 7% and a 5-year corporate bond yields 9%, the credit spread is 2% (200 basis points).

Credit Watch is a status assigned by a credit rating agency to indicate that an issuer's credit rating may change because of a recent event or new information. If a company announces a major acquisition, its rating may be placed on Credit Watch until the agency reviews its impact.

A cross default clause is a provision that treats a default on one loan or bond as a default on other borrowings by the same issuer. If a company misses repayment on one loan, lenders of its other loans may also demand immediate repayment under the cross default clause.

These FDs involve the interest getting added to the principal and being paid together at the end of the tenure, as the maturity amount.

It refers to the interest that gets periodically added to the principal amount, instead of being paid out monthly, quarterly or at other frequencies. This allows investors to earn additional interest through the power of compounding.

Currency risk is the possibility of losing money because of changes in exchange rates when investing in foreign currency-denominated bonds.

EXAMPLE

You invest in a US dollar bond. If the rupee strengthens against the dollar, your returns in rupees may decrease even if the bond performs well.

A debenture is a type of debt security issued by a company to borrow money. It may be secured by assets or unsecured, depending on its terms.

COMPARISON

Basis	Debenture	Bond
Issuer	Usually issued by companies	Can be issued by companies or governments
Security	May be secured or unsecured	Can also be secured or unsecured, depending on the issuer

A debenture trustee is a third-party institution appointed by a company that protects the rights of the investors who have invested in the debentures of the company. The debenture trustee works as a neutral third-party bridge and ensures that the company follows all the rules.

A mutual fund that primarily invests in fixed-income securities such as bonds, government securities and money-market instruments.

Financial instruments through which investors lend money to an issuer in return for regular interest payments and repayment of the principal.

EXAMPLE

Corporate bonds, government bonds, debentures, and treasury bills are all examples of debt securities.

Default risk is the chance that a bond issuer may not repay the interest or principal on time.

EXAMPLE

A company with weak finances generally carries a higher default risk than one with stable earnings.

They refer to financial contracts whose value is linked to variables like an underlying asset, index, interest rate, etc

DICGC (Deposit Insurance and Credit Guarantee Corporation) is a subsidiary of the RBI, which offers insurance that protects bank deposits of up to INR 5 lakh per depositor per bank, in case the bank fails/shuts down.

EXAMPLE

If you have INR 4 lakh kept as FD in ‘Bank A’ and INR 3 lakh as FD in ‘Bank B’, the entire amount in each bank falls under the DICGC’s INR 5 lakh per bank rule. So it will be fully insured. But if you had invested the entire INR 7 lakh in a single bank, then only INR 5 lakh out of that would come under DICGC’s insurance.

Dirty price is the total price paid for a bond, including its clean price and any accrued interest.

CALCULATION

Dirty Price = Clean Price + Accrued Interest

EXAMPLE

If a bond's clean price is INR 1,000 and the accrued interest is INR 25, the dirty price is INR 1,025.

A discount bond is a bond that is issued or traded for less than its face value.

EXAMPLE

Buying a INR 1,000 face value bond for INR 950 means you purchased it at a discount.

Diversification means spreading your investments across different assets, issuers, or sectors to reduce overall risk.

EXAMPLE

Instead of investing only in one company's bonds, you invest in government bonds, corporate bonds, and bond mutual funds.

Downgrade risk is the possibility that a bond's credit rating may be lowered, which can reduce its market value.

EXAMPLE

If a company's rating falls from AA to A, investors may demand a higher yield, causing the bond's price to fall.

Duration matching is a strategy where the duration of a bond portfolio is aligned with a future financial goal to reduce interest rate risk.

EXAMPLE

If you need money after 8 years , you can build a bond portfolio with a duration close to 8 years.

Duration risk is the risk that a bond's price will change because of movements in interest rates.

EXAMPLE

A 15-year bond will usually lose more value than a 3-year bond if interest rates increase.

Early redemption happens when a bond is repaid before its scheduled maturity date, either by the issuer or under the bond's terms.

EXAMPLE

A company may redeem a callable bond three years before maturity after obtaining cheaper financing.

An Electronic Book Provider (EBP) is an online platform that enables companies to issue debt securities electronically by collecting bids from eligible investors.

EXAMPLE

A company planning to issue corporate bonds may use an EBP platform to receive bids and determine the final issue price.

A mutual fund that primarily invests in shares and other equity-related securities.

A fund that typically tracks an index, commodity or other asset and is traded on a stock exchange like a share.

A bond issued in a currency that is different from the currency of the country where it is issued.

EXAMPLE

A company based in India may issue a bond in US dollars in the London market. This is an example of a Eurobond.

An exchange-traded bond is a bond that is listed and traded on a stock exchange, allowing investors to buy or sell it during market hours.

EXAMPLE

Like shares, exchange-traded bonds can be bought and sold through a trading account on the stock exchange.

A fee charged when an investor redeems mutual fund units within a specified period, if applicable.

The annual percentage of a mutual fund's assets charged to cover expenses such as fund management and administration.

Face value is the amount a bond issuer promises to repay the investor when the bond matures. It is also known as the par value.

EXAMPLE

If a bond has a face value of INR 1,000, you'll receive INR 1,000 at maturity, regardless of the price you paid to buy it, assuming the issuer meets its obligations.

Fixed income investments are a broad class of securities that provide returns in the form of regular interest payments and dividends, and give back the principal upon maturity. They are issued by governments, corporations, and other entities to finance their operations. Some examples include govt and corporate bonds, treasury bills, and fixed deposits.

A floating rate bond pays interest that changes periodically based on a benchmark interest rate.

EXAMPLE

If a bond pays Repo Rate + 2%, its coupon will change whenever the repo rate changes.

A Foreign Currency Convertible Bond (FCCB) is a bond issued in a foreign currency that can be converted into shares of the issuing company under specified terms. An Indian company may issue FCCBs in US dollars, giving investors the option to convert them into company shares later.

Form 121 is a new consolidated form which has replaced Form 15G and 15H since April 1st, 2026. If your estimated tax liability for a particular year is nil, then you can claim TDS exemption on your eligible investment income from FDs, Bonds, and Post Office schemes by filling Form 121 for that year.

Individual investors below 60 years of age used Form 15G to avoid TDS deduction from their interest income (under Section 197A(1C) of the Income Tax Act). It was applicable only when the total taxable income of the individual investor was below the threshold limit. Investors used to fill this form to inform the issuers, such as banks and other financial institutions, not to deduct the TDS.

Form 15G is no longer required because it is replaced by Form 121.

Form 15H is a self-declaration form which was required for individual investors aged above 60 years to avoid TDS deduction (under Section 197A(1C) of the Income Tax Act). Investors used this form to inform the issuers that their total taxable income is below the threshold limit and hence TDS should not be deducted from their interest income.

Form 15H is no longer required because it is replaced by Form 121.

A periodic document providing key information about a mutual fund scheme, such as its portfolio, performance, AUM and risk.

G Spread is the difference between the yield of a bond and the yield of a government bond with the same maturity. It helps measure the extra return investors receive for taking additional risk.

EXAMPLE

If a corporate bond yields 8.5% and a government bond of the same maturity yields 7%, the G Spread is 1.5% (150 basis points).

These funds invest at least 80% in government securities. Since they're backed by the government, credit risk is virtually zero, although interest-rate risk still remains.

A government bond is a debt security issued by the government to raise money for public spending. It is generally considered one of the safer fixed-income investments.

EXAMPLE

Government securities (G-Secs) issued by the Government of India are examples of government bonds.

A green bond is issued to raise money exclusively for projects that benefit the environment, such as renewable energy or clean transportation.

EXAMPLE

Funds raised through a green bond may be used to build solar power plants or improve energy-efficient infrastructure.

The strategy of using another financial instrument or investment to reduce the potential impact of an unfavourable price movement.

Holding Period Return (HPR) measures the total return earned from an investment over the period you own it, including interest and any price gain or loss.

CALCULATION

HPR = (Interest Received + Selling Price ? Purchase Price) ÷ Purchase Price × 100

A mutual fund that invests in a combination of asset classes, typically equity and debt.

A bond whose interest payments or principal are adjusted based on inflation, helping preserve the investor's purchasing power.

EXAMPLE

If inflation rises during the bond's tenure, the amount payable to investors may also increase.

A bond issued to raise funds for projects such as roads, railways, airports, power plants, and other public infrastructure.

EXAMPLE

A company may issue infrastructure bonds to finance the construction of a new highway or metro rail project.

Insolvency is a financial situation where a company or individual is unable to pay its debts when they become due.

EXAMPLE

If a company cannot repay its lenders despite selling its assets, it may enter insolvency proceedings.

An institutional investor is an organisation that invests large sums of money on behalf of others, such as mutual funds, insurance companies, pension funds, or banks.

EXAMPLE

A mutual fund investing in government and corporate bonds is an institutional investor.

An investment-grade bond is a bond with a relatively high credit rating (BBB- or above), indicating a lower risk of default.

IRR is an investment’s annual rate of return, which is expected to be generated over its entire holding period, after factoring in all cash flows through the tenure.

ISIN (International Securities Identification Number) is a unique 12-character code assigned to a security, making it easy to identify and trade.

The issue price is the price at which a bond is offered to investors when it is first issued.

EXAMPLE

A bond with a face value of INR 1,000 may be issued at INR 1,000, INR 980, or INR 1,020, depending on the issuer's pricing.

An issuer is the government, company, or financial institution that raises money by issuing bonds or other securities.

EXAMPLE

When a company issues corporate bonds to fund expansion, the company is the issuer.

A junk bond is a bond with a low credit rating (Below BBB-) that offers higher returns to compensate investors for taking on greater credit risk.

COMPARISON

Basis	Junk Bond	Investment-Grade Bond
Credit Rating	Lower credit rating	Higher credit rating
Default Risk	Higher default risk	Lower default risk
Yield	Usually offers higher yields	Usually offer lower yields

Mutual funds that invest in instruments maturing within 91 days, such as treasury bills and certificates of deposit. They can be used for parking surplus cash for a few weeks or months.

Long-Term Capital Gain (LTCG) is the profit earned from selling a bond after holding it for more than the period specified under the applicable tax laws (currently 1 year).

EXAMPLE

If you buy a bond for INR 1,000 and sell it for INR 1,150 after 1 year, the INR 150 profit is treated as LTCG.

It measures the average time it takes for an investor to recover the bond's cost through its interest payments and principal repayment.

EXAMPLE

A bond with a Macaulay Duration of 5 years means the investor recovers the investment, on average, over five years through its cash flows.

A provision that allows an issuer to redeem a bond before maturity by paying investors an amount that compensates them for the remaining interest payments.

EXAMPLE

If a company redeems a bond early, investors receive the principal along with an additional amount calculated using a specified formula.

The total market value of a company's outstanding shares. It is commonly used to measure a company's size.

CALCULATION

Market Capitalisation = Share Price × Total Outstanding Shares

A Masala Bond is a rupee-denominated bond issued outside India by an Indian entity to raise funds from overseas investors. The bond is denominated in rupees but settled in foreign currency, so the investor - not the Indian issuer - carries the rupee-exchange-rate risk.

It measures how much a bond's price is expected to change when interest rates change. It is widely used to estimate a bond's interest rate sensitivity.

EXAMPLE

If a bond has a modified duration of 6, its price is expected to change by about 6% for every 1% change in interest rates, assuming all other factors remain the same.

A Mortgage-Backed Security (MBS) is an investment backed by a pool of home loans. Investors earn returns from the mortgage payments made by borrowers.

EXAMPLE

A bank bundles thousands of home loans into one security, and investors receive a share of the monthly repayments.

A municipal bond is a debt security issued by a municipal corporation or local government body to raise funds for public infrastructure projects.

EXAMPLE

A city may issue municipal bonds to finance projects such as roads, water supply systems, or public transport.

The per-unit value of a mutual fund scheme, calculated based on the value of its assets after adjusting for liabilities.

It refers to FDs that do not allow investors to withdraw their money before maturity. To compensate for the lack of liquidity, they generally offer slightly higher interest rates than callable FDs.

These FDs involve interest payout at regular intervals, such as monthly, quarterly, or annually, instead of being paid out only at maturity.

A Non-Convertible Debenture (NCD) is a type of corporate debt that cannot be converted into the company's shares. Investors earn returns through regular interest payments.

COMPARISON

Basis	NCD	Convertible Debenture
Conversion into Shares	Cannot be converted into shares	Can be converted into shares
Interest Payments	Offers fixed interest payments	May offer lower interest with a conversion option

A Non-Performing Asset (NPA) is a loan or advance on which the borrower has stopped making repayments for a specified period.

EXAMPLE

If a borrower fails to pay loan instalments for more than 90 days, the loan is generally classified as an NPA by banks.

Online Bond Platform Providers (OBPPs) are SEBI-registered platforms that act as intermediaries to facilitate buying and selling of bonds in the Indian market.

An offer document is a legal document that contains all the important details about a bond issue, including its features, risks, and terms. Before investing in a bond, you can read the offer document to understand its coupon rate, maturity, and associated risks.

Open Market Operations (OMO) are the buying and selling of government securities by the Reserve Bank of India (RBI) to manage liquidity and interest rates in the economy.

EXAMPLE

When the RBI buys government bonds, it injects money into the banking system. When it sells bonds, it absorbs liquidity.

Par value is the original value of a bond that the issuer repays at maturity. It is also known as the face value.

EXAMPLE

If a bond has a par value of INR 1,000, the issuer will repay INR 1,000 when the bond matures.

A perpetual bond is a bond with no fixed maturity date. The issuer continues paying interest indefinitely unless the bond is redeemed under its terms.

EXAMPLE

An investor may receive regular interest from a perpetual bond for many years without the principal being repaid on a fixed date.

The primary market is where new bonds are issued and sold to investors for the first time.

COMPARISON

Basis	Primary Market	Secondary Market
Bond Availability	New bonds are issued	Existing bonds are traded
Transaction	Investors buy directly from the issuer	Investors buy from and sell to other investoINR

PTCs (Pass-Through Certificates) refer to a specific debt instrument issued to investors of SDIs.

When a lender bundles a pool of loans or other receivables and transfers them to an SPV (Special Purpose Vehicle), the SPV goes on to issue PTCs to investors, representing a proportional share in the cash-flow rights from that underlying pool of securities.

A put option gives the bondholder the right to sell the bond back to the issuer before maturity on specified dates.

EXAMPLE

If interest rates rise significantly, an investor may use the put option to exit the bond early and reinvest elsewhere.

A puttable bond allows investors to redeem the bond before maturity by selling it back to the issuer under predefined terms.

EXAMPLE

A 10-year puttable bond may allow investors to exit after five years if they choose.

A large financial institution that meets regulatory criteria to invest in certain securities.

EXAMPLE

Mutual funds, insurance companies, pension funds, and scheduled commercial banks are examples of QIBs in India.

As per SEBI guidelines, any issuer who wishes to list its debt securities has to create a REF (recovery expense fund) and deposit it with a designated stock exchange. The presence of such a fund helps Debenture Trustees to take prompt action for enforcement of security in case of a default in listed debt securities.

Redemption is the repayment of a bond's principal by the issuer, usually on the maturity date or earlier if permitted.

EXAMPLE

When an INR 1,000 bond matures, the issuer redeems it by paying the investor INR 1,000.

The repurchase (repo) rate is the interest rate at which India’s central bank (RBI) lends funds to commercial banks, against government securities. RBI reviews the repo rate once every two months during its Monetary Policy Committee (MPC) meeting. When the repo rate is reduced, it makes taking loans cheaper, and if the rate is increased, it makes borrowing expensive.

It refers to a foreign currency FD available to returning NRIs/peINR ons resident in India who were previously resident outside India, per FEMA. It allows them to hold those funds in foreign currency instead of converting them into rupees.

Residual maturity is the time remaining until a bond reaches its maturity date.

EXAMPLE

If a 10-year bond has already completed 4 years, its residual maturity is 6 years.

It measures how much profit or loss you've made on an investment compared to the amount you originally invested.

CALCULATION

ROI = (Profit ÷ Investment Cost) × 100

EXAMPLE

If you invest INR 1,00,000 and earn a profit of INR 12,000, your ROI is 12%.

A risk premium is the extra return investors expect for taking on a riskier investment instead of a safer one.

EXAMPLE

A corporate bond yielding 9% compared to a government bond yielding 7% offers a 2% risk premium.

An SDI is a financial instrument created by bundling multiple loans or receivables and converting them into fixed-income securities. Investors can buy pieces of these securities and earn returns from the loan repayments, hence providing a steady income to them.

The secondary market is where investors buy and sell bonds after they have been issued in the primary market.

EXAMPLE

If you sell a corporate bond to another investor through a stock exchange, the transaction takes place in the secondary market.

A secured bond is backed by specific assets of the issuer. If the issuer defaults, these assets may be used to repay investors.

COMPARISON

Basis	Secured Bond	Unsecured Bond
Backed By	Backed by assets	Not backed by specific assets
Risk	Generally lower risk	Generally higher risk

Securitisation is the process of pooling loans or other income-generating assets and converting them into securities that can be sold to investors.

EXAMPLE

A lender may bundle home loans into securities that investors can purchase to earn returns from borrowers' repayments.

A senior bond has a higher claim on an issuer's assets than junior or subordinated debt if the issuer goes into liquidation.

EXAMPLE

In the event of bankruptcy, senior bondholders are generally repaid before subordinated bondholders.

A facility that allows investors to invest a fixed amount in a mutual fund at regular intervals, such as monthly.

A sovereign bond is a bond issued by a national government to raise money for public spending and development.

EXAMPLE

Government Securities (G-Secs) issued by the Government of India are examples of sovereign bonds.

A sovereign credit rating measures a country's ability to repay its debt. It helps investors assess the credit risk of investing in that country's securities. Countries with stronger sovereign credit ratings are generally able to borrow at lower interest rates.

A government security whose value is linked to the price of gold. It allows investors to gain exposure to gold without buying physical gold. You can invest in an SGB and benefit from changes in gold prices while also earning periodic interest of 2.5% p.a.

Note: Fresh SGB tranches are not currently being issued; existing SGBs can be bought and sold on the stock exchanges.

A green bond issued by a government to finance projects that have environmental benefits.

Funds raised may be used for renewable energy projects, clean transportation, or climate-resilient infrastructure.

SIFs are a SEBI-regulated category of mutual funds aimed at investors who are looking for advanced investment strategies. They were introduced to bridge the gap between mutual funds and PMS (Portfolio Management Services) for sophisticated investors, with flexible strategies like long-short, sector rotation, hybrid, etc.

SIFs carry a minimum investment of INR 10 lakh per investor across strategies of an AMC, which is what actually separates them from mutual funds.

SPV (Special Purpose Vehicle)

SPV is a separate legal entity created to hold pooled assets like car loans or home loans, and issue loan- backed securities to investors, as part of a securitisation transaction like SDIs.

A spread is the difference between two prices, interest rates, or bond yields. It is commonly used to compare the risk or return of different investments.

EXAMPLE

If Bond A yields 8% and Bond B yields 6.5%, the spread between them is 1.5% (150 basis points).

A step down bond is a bond whose coupon rate decreases at specified intervals over its tenure.

EXAMPLE

A bond may pay 9% for the first two years and 8% thereafter.

A step-up bond is a bond whose coupon rate increases at predetermined intervals during its tenure.

EXAMPLE

A bond may pay 7% for the first three years and 8% for the remaining term.

A facility that allows an investor to periodically transfer a specified amount from one mutual fund scheme to another within the same fund house, subject to applicable terms.

A strip bond is created by separating a bond's interest payments and principal repayment into individual securities that can be traded independently.

EXAMPLE

An investor can buy only the principal repayment portion of a strip bond instead of purchasing the entire bond.

A subordinated bond is repaid only after senior debt holders have been paid if the issuer is liquidated.

COMPARISON

Basis	Senior Bond	Subordinated Bond
Repayment Priority	Higher repayment priority	Lower repayment priority
Risk	Generally lower risk	Generally higher risk

These FDs are linked to a savings account. Whenever your savings account balance crosses a set limit (which you set, like INR 50,000 or INR 1 lakh), the excess money gets automatically transferred to the FD, so the surplus earns the higher FD rate instead of the savings account rate. Also, money flows back to the savings account automatically if the balance falls short.

A facility that allows investors to withdraw a specified amount from their mutual fund investment at regular intervals.

A Treasury Bill (T-Bill) is a short-term government security issued at a discount and redeemed at its face value on maturity.

EXAMPLE

You buy a 91-day T-Bill for INR 98,500, and on maturity, the government pays INR 1,00,000. The difference is your return.

An unsecured bond is not backed by any specific assets. Investors rely on the issuer's financial strength and ability to repay the debt.

Volatility refers to the degree to which the price of a bond or other investment moves up or down over time.

EXAMPLE

Long-term bonds generally experience higher price volatility than short-term bonds when interest rates change.

It measures the average time it takes for the principal of a bond or loan portfolio to be repaid.

For securities backed by loans, WAL helps investors estimate when they are likely to recover most of their principal.

Weighted Average Maturity (WAM) measures the average time until the securities in a portfolio mature, taking into account the amount invested in each one.

EXAMPLE

A bond fund holding mostly short-term bonds will generally have a lower WAM than a fund investing mainly in long-term bonds.

XIRR (Extended Internal Rate of Return) is the annualised return on an investment where money is invested or received at irregular intervals. Unlike IRR, which assumes evenly spaced cash flows, XIRR uses the actual date of each cash flow.

XIRR is usually calculated through MS Excel, using its formula of ‘= XIRR (Values, Dates, [guess]), wherein you need to enter the array or range of cells representing your cash flow series as ‘Values’, then in ‘Dates’ you need to enter the range of dates corresponding to each cash flow. And lastly, in ‘Guess’, you need to enter an optional number which can be close to the final result, as per you.

Yield is the return an investor earns from a bond based on its interest payments and, in some cases, its market price.

EXAMPLE

A bond paying INR 80 annually with a market price of INR 1,000 has a yield of 8%. This is a specific example of current yield; current yield ignores capital gain/loss to maturity, and YTM includes it.

A yield curve is a graph that shows the yields of similar bonds across different maturities. It helps investors understand interest rate expectations and economic conditions.

EXAMPLE

If a 2-year government bond yields 6.5% and a 10-year bond yields 7.2%, plotting these yields forms part of the yield curve.

A yield curve inversion happens when short-term bonds offer higher yields than long-term bonds. It is often seen as a sign of slowing economic growth.

EXAMPLE

If a 2-year government bond yields 7.1% while a 10-year bond yields 6.8%, the yield curve is inverted.

Yield to Call (YTC) is the total return an investor can expect if a callable bond is redeemed by the issuer before its maturity date.

EXAMPLE

If a bond is likely to be called after five years instead of maturing after ten years, YTC estimates the annual return over those five years.

Yield to Maturity (YTM) is the total annual return an investor can expect if a bond is bought at its current market price and held until maturity, assuming all interest payments are received as scheduled.

EXAMPLE

A bond with a face value of INR 1,000 purchased for INR 950 will generally have a YTM higher than its coupon rate because the investor also gains INR 50 when the bond matures.

A zero-coupon bond does not pay regular interest. Instead, it is issued at a discount and redeemed at its face value on maturity.

EXAMPLE

You buy a zero-coupon bond for INR 9,000, and on maturity, you receive INR 10,000. The INR 1,000 difference is your return.

A zero-coupon yield curve shows the yields of zero-coupon bonds across different maturities. It is commonly used to value bonds and estimate future interest rates.

EXAMPLE

Analysts use the zero-coupon yield curve to calculate the present value of a bond's future cash flows.