The debt market are less risky when compared other market such as equity market. It is the market where fixed income securities of various types and features are issued and traded.
These debt instruments usually issued by Central and State Governments, Municipal Corporations, Govt. bodies and commercial entities like Financial Institutions, Banks, Public Sector Units, Public Ltd. companies and also structured finance instruments.
1. One should consider the discount implied by the price as in the case of zero coupon bonds and the frequency of interest payments.
2. Timing of Cash Flows - In case the interest and redemption proceeds, at one single point or at different points of time, are planned to be used for meeting certain planned expenses in the future.
3. Information about the Issuer and the Credit Rating - It is essential to obtain enough information about the background, the business operations, the financial position, the use of the funds being collected and the future projections to satisfy oneself of the suitability of the investment.
4. Obtain all the relevant knowledge on the debt security like the coupon, maturity, interest payments, put and call options (if any), Yield To Maturity (at the particular price at which the trade is intended to be carried out) and the Duration of the Instrument.
5. Check the Yield To Maturity (YTM) of the debt security with the YTMs of other comparable debt securities of the same class and features.
6. Remember that the Yield and the Price are inversely related. So, you will be able to obtain a higher yield at a lower price.
7. It is desirable to check on the liquidity of any corporate debt instrument before investing in it so as to ensure the availability of satisfactory exit options.
8. The Debt Markets are suited for investors who seek decent returns over a longer time horizon with periodic cash flows. There is also a tax exemption for interest earned on G-Secs. up to Rs.3000/- under Section 80L of the Income Tax Act.