To meet their fiscal deficit the Central and State Government issue Central Government Securities; Treasury Bills and State Development Loans as per the plan and which is being managed by the Reserve Bank of India. These instruments are categories as a “Sovereign Bonds” and are risk-free.
Central Government Securities are issued for a period of 2 to 40 years and basically classified as Long-Term Bonds whereas the Treasury Bills are Money Market Instruments are issued for a period of 91; 182 & 364 Days currently. State Development Loans are too long-term bonds and issued by the various states of the country to meet their fiscal deficit.
These bonds are issued by the PSU corporates; Private Corporates; Nationalized Banks or Private Banks or NBFCs from time to time to meet their capital requirement. These bonds are issued in either form.
Corporate Bonds are measured and priced in both Primary and Secondary Market on basis of the “Rating” assigned by the different rating agencies in the country like CRISIL; CARE OR ICRA. The bonds carry the highest rating “AAA” considered to be the safest and priced accordingly. The Tax-Free Bonds are highly demanded in the market by the corporates; HNI & Retail Investors as the interest receivable on these bonds are Tax-Free and mostly all the Tax-Free Bonds carry highest rating AAA and are issued by the PSU corporates like National Highway Authority of India Ltd (NHAI); Rural Electrification Corporation (REC) etc. Perpetual bonds do not have a specified date of maturity. The issuers can buy back the bonds after a certain period, and it is generally five years or 10 years. Like other bonds, these bonds are also listed on the stock exchanges and provide exit opportunities to the Investors. Zero-coupon bonds are issued at discount and redeemed at par for example NABARD has issued many Zero-Coupon Bonds which has a face value of Rs.20,000 and issued at a discounted price of say Rs.8,000 for a period of 10 years. In Floating Rate Bonds, the interest rate is not fixed it keeps on changing throughout the maturity of the bonds as per the prevailing interest rates in the banking system. These bonds are best when interest rates are bottoming out and an investor will get the higher interest if interest rates move up in the system and the best example of such bonds are RBI Floating Rate Bonds which are linked to the interest rates of the National Saving Certificate (NSC) + 35 bps and are issued for a period of 7 years and interest is paid semi-annually. Through Capital Gain Bonds an investor can save tax if he or she has sold some property or any assets. These bonds get benefit under section 54 EC of the Income Tax Act.
The only disadvantage of this instrument has a lock-in period of 7 years. Like other bonds, these bonds are not tradable and not having an exit route before a maturity period of 7 years.
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