Debt markets involve the trading of fixed income instruments where issuers like governments and corporations borrow money from investors at fixed interest rates. A bond is a loan where the issuer is obligated to repay the principal along with predetermined interest to the investor. While equity ownership involves risk, debt instruments make the investor a creditor with a higher claim than shareholders. The face value of a bond is the amount repaid, while the coupon rate is the periodic interest payment calculated on the face value. Debt markets play a vital role in allocating resources for economic growth. Bonds, debentures, commercial paper and other instruments allow balancing risk in investment portfolios.

1. Debt markets

2. Debt markets in a nutshell..
• Market in which debt instruments are traded
• Debt instruments are fixed income
instruments ie the interest rates are fixed
providing a fixed income to the bond holder
• The major issuers of bonds are the central and
state governments, municipal corporations
and private entities such as corporates,banks
etc.

3. What is a bond..?
• It is a loan
• Loan by the investor to the issuer
• The issuer is obligated to pay back the
principal amount along with a pre-determined
rate of interest on a specific date to the
investor.
• A complete risk free instrument.

4. Debt and equity compared.
• When an investor invests in equity, he becomes
the owner of the company to the % of shares he
holds.
• Along with ownership he takes on the risk
involved with shares of the company.
• In case of debt, investor becomes the creditor to
the issuing entity. As creditor he has higher claim
to the assets as compared to a shareholder
• the company is obligated to pay him the interest
and principal amount

5. What is Face value (FV) and coupon
rate.
• Face value is the amount the investor will get
back after the instrument matures.
• Bonds maybe issued at face value or at a
discount to the FV.
• If a bond is trading at a value higher than its
FV then it is trading at a premium. If it trades
lower than FV it is trading at a discount.

6. • Coupon is the amount investor will receive as
interest payments for the debt instrument.
• While most bonds pay interest semi anually,
some pay on a monthly, quarterly and yearly
basis.
• The interest is calculated and paid on the face
value of the instrument irrespective of the
price in the market.
• A coupon may either be fixed or floating. In
case of fixed rate the interest rate is fixed till
maturity while in floating rate, the issuer can
adjust the rate based on market conditions.

7. Debt market and the ecnomy
• Debt markets are vital for the growth of any
economy since they offer proper and efficient
allocation of resources
• Debt instruments are used to finance
developmental activities of the government.

8. Few important debt instruments..
• Bonds
• Debenture
• Commercial paper
• Certificate of deposit
• G-sec

9. Role of debt instruments in portfolio
management
• Any given portfolio is a mixture of equity and
debt based on the risk appetite of the investor.
• For an aggressive fund, the debt instruments act
as a balancer.. Or rather acts as a hedging source.
• The risk undertook in equity can be balanced to
some extent by opting for debt investments.
• As debt instruments provides a guarantee
return(8%) the investor can use it to fulfill long
term goals as well as use it as a back up for
managing the risk involved with shares which
along with risk provides high return(15%)