Debt Market: Definition, instruments and features explained

 A tradable form of loan is normally termed as a Debt Instrument. They are obligations of the issuer of such instrument as regards certain future cash flow representing Interest & Principal, which the issuer would pay to the legal owner of the Instrument.

Debt Instruments are of various types. The distinctive types of the Debt Instruments are as follows: –

• Government securities,
• Corporate bonds,
• Commercial paper,
• Treasury bills,
• Strips 
• Debentures,

 For an individual investor Government Securities (G-secs) are one of the best investment options as there is zero default risk and lower volatility in the case of G-secs.

The main features of debt instruments are the maturity date, return on capital, the issue date and issue price, and the coupon rate. The distinguishing factors of the Debt Instruments are as follows: –

• Issuer class
• an issue date, on which the debt security is issued;
• an issue price, at which investors buy the debt securities when first issued;
• a redemption (or maturity) date, on which the final contractually scheduled repayment of the principal is due;
• Coupon bearing / Discounted
• Interest Terms
• Repayment-Terms (Including Call / Put etc.)
• Security / Collateral / Guarantee

Under the RBI Retail Direct scheme, individual retail investors can open a Gilt Securities Account known as “Retail Direct Gilt (RDG)” with the RBI. Institutional investors operating in the Indian Debt Market are Banks, Insurance companies, Provident funds, Mutual funds, Primary Dealers, Trusts, Corporate treasuries, and foreign investors (FIIs).

Regulators:

RBI regulates entities like banks, non-bank financial companies, Primary Dealers, Cooperative banks, and All India Financial Institutions. RBI from its role as a regulator of financial institutions has to simultaneously fulfill several other important objectives viz. managing the borrowing program of the Government of India, controlling inflation, ensuring adequate credit at reasonable costs to various sectors of the economy, managing the foreign exchange reserves of the country and ensuring a stable currency environment. SEBI controls the bond market and corporate debt market in cases where entities raise money from the public through public issues. Apart from the two main regulators, the RBI and SEBI, there are several other regulators specific for different classes of investors, eg the Central Provident Fund Commissioner and the Ministry of Labour regulate the Provident Funds. Religious and Charitable trusts are regulated by some of the State governments of the states, in which these trusts are located.