DEBT MARKET

Presented By:

Shubham Ahirwar

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Debt Market
 The Debt Market often called the bond market or credit market is a financial marketplace where
investors can trade in government-issued and corporate-issued debt securities.

 Governments typically issue bonds in order to raise capital to pay down debts or fund
infrastructural improvements.

 Publicly-traded companies issue bonds when they need to finance business expansion projects or
maintain ongoing operations.

 The debt or bond market is broadly segmented into two different silos:

 Primary Market is frequently referred to as the "new issues" market in which transactions
strictly occur directly between the bond issuers and the bond buyers.

 Secondary Market are securities that have already been sold in the primary market are then
bought and sold at later dates.
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Importance of the Debt Market in the Economy

The key role of the debt markets in the Indian economy stems from the following reasons:

 Efficient mobilization and allocation of resources in the economy.

 Financing the development activities of the Government.

 Transmitting signals for implementation of the monetary policy.

 Facilitating liquidity management in tune with overall short term and long term objectives.

 The debt markets also provide greater funding avenues to public-sector and private sector
projects and reduce the pressure on institutional financing.

 It also enhances mobilization of resources by unlocking illiquid retail investments like gold.

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Debt Market Instrument
 Loans: Loans are possibly the most easily understood debt instrument. Loans can be acquired
from financial institutions or individuals and can be used for a variety of purposes, such as the
purchase of a home or vehicle or to finance a business venture.

 Debentures: Debentures are not backed by any security. They are issued by the company to raise
medium and long term funds.

 Bonds: Bonds are issued generally by the government. Bonds also ensure payment of fixed
interest rates to the lenders of the money. On maturity of bond, the principal amount is paid back.

 Mortgage: Mortgage is a loan against residential property. It is secured by an associated property.

In a case of failure of payment, the property can be seized & sold to recover the loaned amount.

 Treasury Bills: Treasury bills are short-term debt instruments that mature within a year. They
can be redeemed only at maturity. They are sold at a discount if sold before maturity.

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Participants in the Debt Capital Markets
 Issuers: The entities which issue debt securities are called issuers. Issuers in the debt market have
traditionally been major companies, financial institutions, governments and multi-lateral agencies.

 Investors: The entities which invest in debt securities are called investors. Debt securities have
traditionally been marketed mainly to investment funds, pension funds, insurance companies etc.

 Managers: The entities which arrange, structure, underwrite market and distribute issues of debt
securities are called managers and dealers.

 Agent & trustee: The entities which provide trustee & agency services called trustees & agents.
Trustee & agency services are usually provided by the agency & trust departments of major banks.

 Trading infrastructure: The entities which provide trading infrastructure systems and services
include: stock exchanges, non-exchange financial trading venues, and investment firms who
engage in market making, proprietary trading, and brokerage.

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Advantages of Debt Financing
 Tax advantage: The amount you pay in interest is tax deductible, effectively reducing your net
obligation.

 Predictability: Principal and interest payments are stated in advance, so it is easier to work these
into the company's cash flow. Loans can be short, medium or long term.

 Easier planning: You know well in advance exactly how much principal and interest you will pay
back each month. This makes it easier to budget and make financial plans.

 Retain control: When you agree to debt financing from a lending institution, the lender has no say
in how you manage your company. You make all the decisions. The business relationship ends
once you have repaid the loan in full.

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Disadvantages of Debt Financing
 Qualification Requirements: You need a good enough credit rating to receive financing.

 Collateral: By agreeing to provide collateral to the lender, you could put some business assets at
potential risk. You might also be asked to personally guarantee the loan, potentially putting your
own assets at risk.

 Cash Flow: Taking on too much debt makes the business more likely to have problems meeting
loan payments if cash flow declines. Investors will also see the company as a higher risk and be
reluctant to make additional equity investments.

 Fixed Payments: Principal and interest payments must be made on specified dates without fail.
Businesses that have unpredictable cash flows might have difficulties making loan payments.
Declines in sales can create serious problems in meeting loan payment dates.

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Thank You!