INTRODUCTION

The debt market is any market situation where trading d instruments take place.

Examples of debt instruments include mortgages, promissory notes, bonds, and Certificates of Deposit A debt market establishes a structured environment where these types of debt can be traded with ease between interested parties.

The debt market often goes by other names, based on the types of debt instruments that are traded
In the event that the market deals mainly with the trading of corporate bond issues, the debt market may be known as a bond market.

If mortgages and notes are the main focus of the trading, the debt market may be known as a credit market When fixed rates are connected with the debt instruments, the market may be known as a fixed income market.

Few terms in Debt Market

Maturity Coupon rate Principle Yield to Maturity (YTM)

Current yield

CLASSIFIACTION OF INDIAN DEBT MARKET

Government Securities Market (G-Sec Market): It consists of central and state government securities. It means that, loans are being taken by the central and state government. It is also the most dominant category in the India debt market. Bond Market: It consists of Financial Institutions bonds, Corporate bonds and debentures and Public Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost and hence remove uncertainty in financial costs.

Types of Bonds
Zero Coupon Bond Treasury STRIPS Floating Rate Bonds Catastrophe bonds Deep discount bond Senior versus subordinate Bonds

Deferred interest bonds

Junk Bonds Step-up bonds

What affects bond prices?

Largely interest rates and credit quality of the issuer are the two main factors which affect bond prices
Interest Rates : The price of a debenture is inversely proportional to changes in interest rates that in turn are dependent on various factors. When interest rates fall, the existing bonds become more valuable and the prices move up until the yields become the same as the new bonds issued during the lower interest rate scenario Credit Quality :When the credit quality of the issuer deteriorates, market expects higher interest from the company and the price of the bond falls and vice-versa. Another factor that determines the sensitivity of a bond is the Maturity Period. A longer maturity instrument will rise or fall more than a shorter maturity instrument.

The main goal of structured debt is to create a debt situation that provides the debtor with as many benefits as possible, while also keeping the overall debt load as low as possible
At the same time, the lender receives an equitable return for the structured debt arrangement

DEBENTURES
Instrument of debt executed by the company A certificate of loan Company pays pre specified percentage of interest Part of the company's capital structure Debentures are generally secured against the companys assets Convertible debentures can be either fully or partly converted into Shares Convertible debentures may carry a lower rate of interest
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TYPES OF DEBENTURES
Security Point of View i. Secured Debentures ii. Unsecured Debentures Tenure Point of View i. Redeemable Debentures ii. Perpetual Debentures Mode of Redemption Point of View i. Convertible Debentures ii. Non-Convertible Debentures Coupon Rate Point of View
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ADVANTAGES
1. Control of company is not surrendered to debenture holders because they do not have any voting rights. 2. Interest on debenture is an allowable expenditure under income tax act, hence incidence of tax on the company is decreased. 3. Debenture can be redeemed when company has surplus funds.

DISADVANTAGES
1. Cost of raising capital through debentures is high of high stamps duty. 2. Common people cannot buy debenture as they are of high denominations. 3. They are not meant for companies earning greater than the rate of interest which they are paying on the debentures.

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What is the difference between bonds and debentures?

World over, a debenture is a debt security issued by a corporation that is not secured by specific assets, but rather by the general credit of the corporation. Stated assets secure a corporate bond, unlike a debenture. But in India these terms are used interchangeably. A bond is a promise in which the Issuer agrees to pay a certain rate of interest, usually as a percentage of the bond's face value to the Investor at specific periodicity over the life of the bond. Sometimes interest is also paid in the form of issuing the instrument at a discount to face value and subsequently redeeming it at par. Some bonds do not pay a fixed rate of interest but pay interest that is a mark-up on some benchmark rate. Typically PSUs, public financial institutions and corporate issue bonds. Another distinction is SLR and non-SLR bonds. SLR bonds are those bonds which are approved securities by RBI which fall under the SLR(Statutory liquidity ratio) limits of banks.

 1.What are thinly traded debt securities ?

A debt security that has a trading volume of less than Rs. 5 crores in the previous calendar month is considered a thinly traded security.

REFERENCE
http://www.wisegeek.com/what-is-the-debt-market.htm http://business.mapsofindia.com/india-market/debt.html http://www.reuters.com/article/idUSTRE65M5E220100623