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Coupon Rate
Coupon rate refers to the periodic interest payments made by the investor to the issuer and is expressed as a percentage of the face value, for example, 7.20%
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Term to maturity
Maturity date of a bond is till when the repayment will need to be done, mature from purchasing the instrument. It changes every day, for example, three years.
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Face Value
Face value is the amount of money paid to the bondholders at maturity, for example, Rs 10 lakhs.
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Principal
A principal is an amount that has been invested by the investor, for example, Rs 50 Lakhs
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Bond Credit Rating
In the financial market, the credit rating of bonds refers to assigned grades based on the creditworthiness of investment. Investment professionals use these ratings to assess the probability of debt repayment by the issuer. Credit rating agencies, like CRISIL, publish it. For example, AAA rating.
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Bond’s yield to maturity
It refers to the interest amount received on a bond held till its maturity date.
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Step-up option
Step-up option refers to an incentive over the normal rate of interest payable on bonds, expressed in terms of basis points. Maximum step-up can be 100 bps in reference to the advertised interest rate in the offer document.
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Tax-free bonds
The bonds issued by Public Sector Undertakings (PSUs), offer fixed payment of interest for a specified period.
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Perpetual Bonds
Bonds with a fixed coupon rate and without a maturity date.
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G-Sec
The government securities issued to the public by the Reserve Bank of India.
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E-Kuber
The Core Banking Solution (CBS) platform of the RBI used for G-Sec auctions.
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Interest payout Frequency
The frequency to receive the interest earned on a bond – Monthly/Quarterly/Semi-annually/Annually/Cumulative
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Treasury Bills
In India, short-term bonds with a maturity of less than one year are named treasury bills.
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Yield Based Auction
Investors need to bid in yield terms up to two decimal places to buy G-Secs, for example, 9.12%,7 .58%, etc. The issuer calculates the cut-off yield and then fixes the coupon rate of bonds. Higher bids than the cut-off yield are not considered to issue the bonds. RBI conducts such auctions to issue a new G-Sec.
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Price Based Auction
Investors need to bid in terms of the price per Rs.100 of the face value of the G-sec, for example, Rs.102, Rs.99, etc. Bids that are below the cut-off price are not considered to issue the bonds. This auction is arranged to re-issue the G-secs.
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Liquidity
Liquidity refers to the degree of how quickly a bond can be traded in the market at the current market price.
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Maturity Date
It differs from the term to maturity. Maturity date refers to the date on which the bond matures, and the lender receives the principal amount back.
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Call Option
The call option is a right for the investor to redeem, call or buy back its existing bonds prior to its maturity date.
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Put Option
A put option is a right for the investor to sell a bond to the issuer before maturity.
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Yield to Call
The rate of return if an investor holds a callable bond until the call date.
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Yield to Put
The rate of return an investor holds a puttable bond until the put date.
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Premium in Bond Pricing
A higher coupon rate than the current market rate increases the demand for such bonds. Therefore, these bonds are sold at a higher price than the face value, thus commanding a premium in the market.
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Discount in Bond Pricing
If the coupon rate is lower than the current market rate, the demand for such bonds also decreases, thus trading at a discounted price than the face value.
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Credit Spread
An additional yield on corporate bonds over the government securities with the same maturity. It is also termed as quality spread.
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Credit Rating Agency
The agency that rates the bonds is known as the credit rating agency. Rating Agencies in India are CARE, CRISIL, ICRA, Fitch Rating India, Brickwork Ratings India.
For further inquiries or to speak to our team, write to: fixedincome@rurashfin.com
