Debt portfolio management has to contend with the construction and management of portfolio of debt instruments, with the primary objective of generating income. Just as the equity fund manager has to identify suitable stocks from a larger universe of equity shares, a debt fund manager has to select from a whole universe of debt securities he wants to invest in.
Debt schemes of a mutual fund have a short maturity period, generally up to one year. nevertheless, some schemes regarded as debt schemes do have maturity period a little longer than a year, say, eighteen months. thus in the context of “debt” mutual funds, depending upon the maturity period of the scheme, the funds managers invest more in “market-traded instruments” or the “debt securities”. the difference in market-traded instruments and debt securities is that the former matures before one year and the later after a year.
Instruments in Indian Debt Market:
the objective of a debt fund is to provide investors with a stable income stream. hence, a debt fund invests mainly in instruments that yield a fixed rate of return and where the principal is secure. the debt market in india offers the following instruments for investment by mutual funds.
Certificate of Deposit:
Certificate of Deposits (CD) are issued by scheduled commercial banks excluding regional rural banks. these are unsecured negotiable promissory notes. bank CDs have a maturity period of 91 days to one year, while those issued by financial institutions have maturities between one and three years.
Commercial Paper:
Commercial Paper (CP) is a short term, unsecured instrument issued by corporate bodies (public and private) to meet short term working capital needs. maturity varies between 3 months and 1 year. this instrument can be issued to the individuals, banks, companies and other corporate bodies registered or incorporated in India. CPs can be issued to NRIs on non – repatriable and non – transferable basis.
Corporate Debentures:
Debentures are issued by manufacturing companies with physical assets, as secured instruments, in the form of certificates. they are assigned credit rating by the rating agencies. all publicly issued debentures are listed on the exchanges.
Floating Rate Bond (FRB):
these are short to medium term interest bearing instruments issued by financial intermediaries and corporations. the typical maturity is of these bonds is 3 to 5 years. FRBs issued by the financial institutions are generally unsecured while those form private corporations are secured.
Government Securities:
these are medium to long term interest – bearing obligations issued through the RBI by the Government of India and state governments.
Treasury Bills.
T-bills are short term obligations issued through the RBI by the Government of India at a discount. the RBI issues T-bills for tenures: now 91 days and 364 days. these treasury bills are issued through an auction procedure. the yield is determined on the basis of bids tendered and accepted.
Debt schemes of a mutual fund have a short maturity period, generally up to one year. nevertheless, some schemes regarded as debt schemes do have maturity period a little longer than a year, say, eighteen months. thus in the context of “debt” mutual funds, depending upon the maturity period of the scheme, the funds managers invest more in “market-traded instruments” or the “debt securities”. the difference in market-traded instruments and debt securities is that the former matures before one year and the later after a year.
Instruments in Indian Debt Market:
the objective of a debt fund is to provide investors with a stable income stream. hence, a debt fund invests mainly in instruments that yield a fixed rate of return and where the principal is secure. the debt market in india offers the following instruments for investment by mutual funds.
Certificate of Deposit:
Certificate of Deposits (CD) are issued by scheduled commercial banks excluding regional rural banks. these are unsecured negotiable promissory notes. bank CDs have a maturity period of 91 days to one year, while those issued by financial institutions have maturities between one and three years.
Commercial Paper:
Commercial Paper (CP) is a short term, unsecured instrument issued by corporate bodies (public and private) to meet short term working capital needs. maturity varies between 3 months and 1 year. this instrument can be issued to the individuals, banks, companies and other corporate bodies registered or incorporated in India. CPs can be issued to NRIs on non – repatriable and non – transferable basis.
Corporate Debentures:
Debentures are issued by manufacturing companies with physical assets, as secured instruments, in the form of certificates. they are assigned credit rating by the rating agencies. all publicly issued debentures are listed on the exchanges.
Floating Rate Bond (FRB):
these are short to medium term interest bearing instruments issued by financial intermediaries and corporations. the typical maturity is of these bonds is 3 to 5 years. FRBs issued by the financial institutions are generally unsecured while those form private corporations are secured.
Government Securities:
these are medium to long term interest – bearing obligations issued through the RBI by the Government of India and state governments.
Treasury Bills.
T-bills are short term obligations issued through the RBI by the Government of India at a discount. the RBI issues T-bills for tenures: now 91 days and 364 days. these treasury bills are issued through an auction procedure. the yield is determined on the basis of bids tendered and accepted.