Page 47 - Banking Finance November 2025

ARTICLE

Architecture of

Bonds: A Deep Dive

into Fixed Income

Securities

Nilotpal Banerjee
Chief Manager (Faculty)
Staff Training Centre
Powai

Bonds are often referred to as debt securities, and they are a critical component of the financial
market, offering a safer investment alternative compared to equities. Bonds are favored by
conservative investors due to their relatively lower risk and predictable returns.

I n India, the bond market has evolved significantly over Who Issues Bonds and Why?

the years, offering a wide range of products to cater
Bonds are issued by various entities, including:
to the diverse needs of investors. This article delves
into the various aspects of bonds, their types, valuation 1. Governments (Central and State): To finance public
projects like infrastructure development, healthcare,
methods, and the factors affecting their prices, with a
education, and defence. In India, government bonds are
specific focus on the Indian market. Bonds are a cornerstone known as Government Securities (G-Secs) or Treasury
of the global financial system, providing a stable and reliable Bills (T-Bills).
form of investment for institutions and individual investors
alike. 2. Corporations: To raise capital for business expansion,
mergers and acquisitions, or to refinance existing debt.
Definition of Bond: Corporate bonds in India are issued by companies across
various sectors like banking, manufacturing, and
A bond is a fixed-income financial instrument that represents
utilities.
a loan made by an investor to a borrower, typically a
3. Municipalities: Local governments issue bonds to fund
corporation or government. In essence, when you purchase
public projects within their jurisdiction, such as schools,
a bond, you are lending money to the issuer in exchange
highways, and water systems. These bonds are less
for periodic interest payments and the return of the bond's
face value when it matures. common in India but are gaining traction.
4. Financial Institutions: Banks and other financial
Bonds are often referred to as debt securities, and they are entities issue bonds to manage their capital structure
a critical component of the financial market, offering a safer and liquidity requirements.
investment alternative compared to equities. Bonds are
favored by conservative investors due to their relatively Issuers prefer bonds as they provide an opportunity to raise
lower risk and predictable returns. large sums of money without giving up equity or ownership

42 | 2025 | NOVEMBER | BANKING FINANCE