Decoding Indian Debt Market

The Indian debt market, one of the largest in Asia, is developing rapidly buoyed by a multitude of factors including new instruments, increased liquidity, deregulation of interest rates and improved settlement systems. The major players in the Indian debt markets today are banks, financial institutions, insurance companies, FIIs and mutual funds.

The instruments in the market can be broadly categorized as those issued by corporates, banks, financial institutions and those issued by state/central governments.

The risks associated with any investments are - credit risk, interest rate risk, settlement risk and liquidity risk. While corporate papers carry credit risk due to changing business conditions, government securities are perceived to have zero credit risk.

Interest rate risk is present in all debt securities and depends on a variety of macroeconomic factors.

The largest segment of the Indian Debt market consists of the Government of India securities where the daily trading volume is more than Rs. 10,000 crore, with instrument tenors ranging from short dated Treasury Bills to long dated securities extending upto 30 years.

The Corporate bond market, though relatively less liquid, is also fast developing with an increased participation from the banks, Financial Institutions, mutual funds, provident funds, insurance companies and cash rich corporates.

Also, there are large numbers of instruments available like MIBOR linked bonds, commercial papers and medium to long dated fixed and floating rate bonds.

The yield curve usually tends to be positive sloping i.e. yield of shorter dated securities being lower than that of longer dated ones.

The money markets in India essentially consist of call money market (i.e. market for overnight and term money between banks and institutions), repo transactions (temporary sale with an agreement to buy back the securities at a future date at specified price), CBLO, commercial papers (CPs, short term unsecured promissory note, generally issued by corporates), certificate of deposits (CDs, issued by banks) and Treasury Bills (issued by RBI). A predominantly institutional market, the key money market players are banks, financial institutions, insurance companies, mutual funds, primary dealers and corporates.


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Disclaimer – This information is for general information only and does not have regard to particular needs of any specific person who may receive this information. L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates; does not guarantee/indicate any returns/and shall not be held liable for any loss, expenses, charges incurred by the recipient. The recipient should consult their legal, tax and financial advisors before investing. Recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved.

The returns from mutual funds are subject to market fluctuations while returns on savings account, fixed deposits and bonds are fixed.


Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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