Fixed Income Products
Fixed Income Products refer to those types of investment securities that pay investors fixed interest / coupon payments until their maturity date. At maturity, investors are generally repaid the principal amount they had invested.
Bonds & Debentures
A debt instrument represents a contract whereby one party lends money to another on pre-determined terms about rate, periodicity of interest and repayment of principal amount by the borrower to the lender. In the Indian securities market, the term ‘bond’ is used for debt instruments issued by the Central, State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector. Bonds and debentures represent long-term debt instruments.
There are four primary categories of bonds sold in the markets.
Corporate Bonds: These are issued by companies.
Municipal Bonds: These are issued by states and municipalities. Some municipal bonds offer tax-free coupon income for investors.
Government Bonds: These are issued by the governments of the country. Government bonds issued by national governments may be referred to as sovereign debts / gilt bonds. These bonds are considered as credit risk free bonds.
Agency Bonds: are those issued by government-affiliated organizations.
However, one may also see foreign bonds issued by global corporations and governments on some platforms.
Debentures are normally classified into the following two broad categories:
Convertible Bonds: These have an option that the holder can convert the debt instrument into predetermined number of common stocks or equity shares at a later date.
Non-Convertible Bonds: These don’t have an option of any such conversion.
Company Fixed Deposits
Company Fixed Deposit (corporate FD) is a term deposit which is held over fixed period at fixed rates of interest. Company Fixed Deposits are offered by Financial and Non-Banking Financial Companies (NBFCs). The maturities of various company fixed deposits can range from a few months to a few years. Generally, the interest rates on company deposits are higher than those on bank fixed deposits. Also, company deposits have to be necessarily credit-rated. Consider these factors before choosing Corporate FD schemes to invest in.
Credit Rating: Opt for higher-rated corporate FDs based on its credit rating which indicates the underlying risk of the company.
Company Background: Assess a company’s business viability by referring to its Financial Statements, Management Discussion and Analysis (MD & A).
Repayment History: Companies repayment history helps to determine company’s credit score, credibility and stability.
