1. 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%

  2. 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.

  3. Face Value

    Face value is the amount of money paid to the bondholders at maturity, for example, Rs 10 lakhs.

  4. Principal

    A principal is an amount that has been invested by the investor, for example, Rs 50 Lakhs

  5. 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.

  6. Bond’s yield to maturity

    It refers to the interest amount received on a bond held till its maturity date.

  7. 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.

  8. Tax-free bonds

    The bonds issued by Public Sector Undertakings (PSUs), offer fixed payment of interest for a specified period.

  9. Perpetual Bonds

    Bonds with a fixed coupon rate and without a maturity date.

  10. G-Sec

    The government securities issued to the public by the Reserve Bank of India.

  11. E-Kuber

    The Core Banking Solution (CBS) platform of the RBI used for G-Sec auctions.

  12. Interest payout Frequency

    The frequency to receive the interest earned on a bond – Monthly/Quarterly/Semi-annually/Annually/Cumulative

  13. Treasury Bills

    In India, short-term bonds with a maturity of less than one year are named treasury bills.

  14. 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.

  15. 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.

  16. Liquidity

    Liquidity refers to the degree of how quickly a bond can be traded in the market at the current market price.

  17. 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.

  18. 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.

  19. Put Option

    A put option is a right for the investor to sell a bond to the issuer before maturity.

  20. Yield to Call

    The rate of return if an investor holds a callable bond until the call date.

  21. Yield to Put

    The rate of return an investor holds a puttable bond until the put date.

  22. 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.

  23. 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.

  24. Credit Spread

    An additional yield on corporate bonds over the government securities with the same maturity. It is also termed as quality spread.

  25. 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.

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