Understanding Bond Market | srei

Understanding Bond Market

In the current climate, when there is uncertainty over almost every aspect of life, investment is not an exception. The gloomy market scene has led many potential investors to shy away from plough-back of their money. In what one can take refuge in such circumstances are fixed income instruments. Fixed-income instruments mainly comprise of company bonds, company fixed deposits, convertible & non-convertible debentures and tax-free bonds. At the most basic level, a bond is a loan. Just as people obtain a loan from the bank, governments and companies borrow money from citizens in the form of bonds. A bond really is nothing more than a loan issued by you, the investor, to the government or company, the issuer. For the privilege of using your money, the bond issuer pays something extra in the form of interest payments that are made at a predetermined rate and schedule. The interest rate often is referred to as the coupon, and the date on which the issuer must repay the amount borrowed, or face value, is called the maturity date. The primary goal of the bond market is to provide a mechanism for long term funding of public and private expenditures. The most important advantage of investing in bonds is that it helps diversify and grow your money.

The Bond Market in India with the liberalization has been transformed completely. The opening up of the financial market at present has influenced several foreign investors holding up to 30% of the financial in form of fixed income to invest in the bond market in India. The bond market in India has diversified to a large extent and that is a huge contributor to the stable growth of the economy. The bond market has immense potential in raising funds to support the infrastructure development undertaken by the government and expansion plans of the companies. The bond market in India plays an important role in fund raising for developmental ventures. Bonds are issued and sold to the public for funds.