Securities are financial instruments that represent some value. A Debt or Fixed Income Security represents a creditor relationship with a corporation, government, bank, etc. Generally debt instruments represent agreements to receive certain cash flows depending on the terms contained within the agreement. Fixed-income securities are investments where the cash flows are according to a predetermined amount of interest, paid on a fixed schedule. The different types of fixed income securities include government securities, corporate bonds, debentures, etc. A brief detail about some of these investment options are given below.
Government Securities- G-Secs are issued by the Reserve Bank of India on behalf of the Government of India. Normally the dated Government Securities have a period of 1 year to 30 years. These are sovereign instruments generally bearing a fixed interest rate with interests payable semi-annually and principal as per schedule. G-Secs provide risk free return to investors.
Corporate Bonds- Corporate Bonds are issued by public sector undertakings and private corporations for a wide range of tenors normally upto 15 years although some corporates have also issued perpetual bonds. Compared to government bonds, corporate bonds generally have a higher risk of default. This risk depends, of course, upon the particular corporation issuing the bond, the current market conditions, the industry in which it is operating and the rating of the company. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds.
Debentures – Debentures are instruments for raising loan by a Company. They evidence an acknowledgement of debt with an obligation to repay the sum specified alongwith interest as specified. They are subject to provisions of the Companies Act, 1956 and sections 117 to 123 relating to issue, appointment of debenture trustees, creation of Debenture Redemption Reserve Account, etc., specifically apply to them. As per section 125(4) of the Companies Act, registration of charge for purpose of issue of debentures is mandatory. Debentures form a part of the Company’s capital structure but not a part of the share capital.
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