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DEBT - PRIMARY MARKET
Invest in Opportunity with Debt Market products
The primary market is the platform where newly-created debt securities are first issued and sold to raise capital. In this market, governments and corporations initiate debt financing by selling shares, bonds, bills, and notes to investors. The primary market provides a platform for companies to generate funds to finance their operations, infrastructure development, and other projects. The Securities and Exchange Commission (SEC) enforces strict rules in the primary markets to protect investors.
Once all the debt securities offered in the initial offering are sold, the primary market is closed. In this way, investors purchase debt securities directly from the issuers, and the money goes directly to the issuer.
NCD's
One of the many ways for a company to borrow funds is through NCDs or non convertible debentures. Debentures by nature are debt instruments and as the name says they are non convertible. Like the name suggests they cannot be converted into equity after a defined period of time. Another kind of debenture is the convertible debentures which, as the name mentions, are converted into equity after a certain period. They like other debt instruments, have an interest rate and a tenure. The interest can be paid out monthly, quarterly, annually or at maturity. NCDs are generally listed on the exchange. The prices of such NCDs would vary according to the prevailing interest rates. If the interest rates rise, the price of the bond could fall.
Bonds
Sovereign Gold Bonds (SGBs) :
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.
Key Features and Benefits Of SGBs
Safety and Security
- One of the significant advantages of investing in the Sovereign Gold Bond Scheme is the safety it offers. As these bonds are issued by the government, they carry no risk of theft or loss associated with physical gold. Additionally, the bonds are held in the dematerialized form, eliminating the need for storage and safeguarding concerns.
Tax Benefits
Investing in the Sovereign Gold Bond Scheme offers tax advantages over physical gold investments. The capital gains arising from the redemption of these bonds are exempted from tax if held until maturity. Additionally, the interest income earned from these bonds is taxable but eligible for indexation benefits if sold before maturity.
Collateral
The SGBs can be utilised as loan collateral. The loan-to-value (LTV) ratio will be applicable to any regular gold loan as required from time to time by the Reserve Bank.
Investment Limits- An investor can subscribe to a minimum of 1 gram and a maximum of 4 kilograms of gold per fiscal year in the case of HUFs and individuals whereas trusts and similar entities have a higher limit of 20 kilograms. In case of joint holding, the investment limit of 4 Kg will be applied to the first applicant only.
Attractive Returns
The Sovereign Gold Bond Scheme provides investors with an opportunity to earn attractive returns linked to the price of gold. The bonds carry an annual interest rate, currently set at 2.5% payable semi-annually. The interest earned is added to the bond’s principal value, resulting in compounded returns over the investment tenure.
Liquidity and Tradability
The Sovereign Gold Bond Scheme provides investors with the flexibility to exit their investment before maturity. The bonds are tradable on stock exchanges, providing investors with an avenue to liquidate their investment based on market demand.
Tax Treatment
The provisions of the Income Tax Act of 1961 (43 of 1961) apply to the taxation of interest on SGBs. On the redemption of SGB to an individual, there is no capital gains tax due. Long-term capital gains resulting from the transfer of the SGB to any individual shall get the indexation benefits.