1.
BondsA) Infrastructure Bonds
It is a type of bond issued by both private corporations and by state-owned enterprises to finance the construction of an infrastructure facility
These bonds may be nominated both in local and in more stable foreign currencies, such as U.S. dollars or euros.
The proceeds of these bonds are invested by the company in infrastructure facilities of the country.
Such bonds carries a fixed rate of interest to be paid at the time of maturity.
These bonds have become a tool of tax planning. If a person is investing in infrastructure bonds, he will be eligible for deduction upto maximum of Rs.20000. every financial year.
These are long term investment bonds issued by any NBFC company, like Industrial Financial Corporation of India or IDF.
These companies are an ombudsman borrowing from the investors and lending to the government.
These bonds are used to fund government infrastructure projects. Thus an individual is directly helping in nation development.
B) Capital Gain Bonds
It is also known as section 54EC Bonds. It offers tax-exemption on long-term capital gains from selling or assets.
They are fixed income instruments issued by permitted public sector units, meaning they are backed by government.
Tax-Benefit- Investors can defer capital gain tax payments and claim exemption under section 54EC of the Income Tax Act. This exemption applies to individuals, companies, firms, HUFs and LLPs.
Eligibility-To be eligible, the asset sold, must be a long-term capital asset, such as building or land. 54EC bonds do not offer tax-exemption on short-term capital gains.
Risk- Because they are backed by public sector enterprises, these bonds are generally rated AAA and have a low default rate.
Focus- Capital gain bonds primarily fund rural electrification projects supporting rural electric co-operatives, government departments and state electric boards.
2. National Savings Scheme(NSS) are a group of savings schemes in India that are available to citizens through post offices and banks.
Some of the schemes include:
Here are some features of NSC (National Savings Certificate)
A popular savings bond that is part of India Posts Postal Savings System. NSCs are a good option for small savings and tax savings instruments.
Interest- NSCs offer a fixed interest rate that compounds annually and is paid out at maturity.
Tax-Benefits- NSCs qualify for tax benefits under section 80C of Income Tax Act.
Lock-In-Period- NSCs have a 5-year Lock-In-Period, so you can not withdraw the money early.
Opening- You can open an NSC at any Post-Office in India.
National Savings Scheme (Monthly Income Accounts)
This scheme has a minimum deposit of Rs.1000. and a maximum deposit of Rs.9 lakhs for a single account and Rs.15 lakhs for a joint account. Interest is paid monthly and the account can be closed early after one year.
3. Corporate Fixed Deposit
The deposit placed by the investors with companies for a fixed term & carrying a predefined rate of interest is called Corporate Fixed Deposit. These are majorly issued by NBFCs & Housing Finance Companies.
4. Examples of Government Securities
1. Treasury Bills (Short-Term G-Secs)
2. Dated Securities (Long-Term G-Secs)
3. Cash Management Bills (CMBs)
4. State Development Loans
5. Treasury Inflation-Protected Securities (TIPS)
6. Zero-Coupon Bonds
7. Capital Indexed Bonds
8. Floating Rate Bonds
9. Savings Bonds
10. Treasury Notes
11. Treasury Bonds
5. Arbitrage Funds- is a type of mutual fund that invests in both stocks and bonds, aiming to generate fixed returns through stock price arbitrage. Fund Managers invest in equities when they identify a clear opportunity for returns, in short-term debts and money market instruments when arbitrage opportunities are available.
i) Strategy- Arbitrage funds seek to profit from the difference or spread between a target company stock price and the price offered by the acquiring company in a merger or acquisition.
ii) Risk-Arbitrage funds are considered relatively low risk but payoffs can be unpredictable.
They can be a good option for investors seeking to profit from a volatile market without taking on to much risk.
iii) Taxation- Taxed like equity fund.
iv) Expense Ratios- Investors should be aware of potentially high expense ratios.
6. Market
A) Spot & Derivative Market-
The main difference between Spot & Derivative Markets is that in spot markets, investors own the assets they buy, while in derivative market, investors buy the right to take possession of the assets at the future date.
In Spot Markets, investors buy & hold the assets and take immediate possession of it.
For eg, in stock exchanges, shares are exchanged for cash at the point of sale.
In Derivative Markets, investors buy contracts based on the value of an underlying asset and do not own the asset itself.
For eg, in Future Trading, investors buy contracts based on the value of a commodity.
Here are some differences between Spot & Derivative markets:
i) Risk & Reward: Spot Trading is generally simpler and less risky from derivative trading.
ii) Flexibility: Derivative trading offers more flexibility, allowing traders to profit from both rising and falling markets.
iii) Spot Price: is the current quote for immediate purchase of the commodity.
Prices in derivative markets are based on spot prices.
iv) Hedging: Commodity producers and consumers may buy in the spot market and then hedge in the derivative market.
v) Spot Trading involves directly purchasing and owning cryptocurrencies, providing simplicity and transparency.
Derivative trading uses contracts based on the value of cryptocurrencies, offering flexibility and leverage.
Ideal for long-term investors, spot trading offers lower risks and direct asset ownership.
B) Cash Market & Futures Market-
The main difference between a Cash Market and Futures Market is when transactions are settled:
Cash Market: Transactions are settled immediately or within a short period of time.
For eg: In India, stock market trades are usually settled within T plus 1 or T plus 0 days.
Futures Market: Transactions are settled on a future date at a predetermined price.
In the Futures Market buyers pay for the right to receive as good at a specified date in the future.
Here are some other differences;
i) Ownership: In a cash market, investors immediately own the securities or commodities they purchase.
In the Futures Market, investors commit to a future transaction through a contract.
ii) Holding Period: In a Cash Market, investors can hold onto thier securities or commodities for as long as they want.
In the Futures Market, investors can hold onto their contracts for a maximum of 5 months.
iii) The risk factor in the Cash Market may be lower than in the Futures Market.
When deciding which market to invest in, investors should consider, factors like settlement period, risk exposure, liquidity and leverage options.
While the Cash Markets offers immediacy, the Futures Market provides avenues for Hedging and Speculation.
Choosing the right market depends on ones financial goals and risk apetite.
