Gilt Funds

Gilt funds invest in government issued medium and long term bonds. They can also invest in high rated (Aaa/AAA rating*) corporate bonds. Gilts/Government bonds are not rated. Gilts/Treasury bonds are considered extremely credit worthy because they are backed by the Governments. If a scenario arises where it has to default it will repay the principal by printing currency. So they are always considered extremely safe.

Some Government Sponsored enterprises are also not rated. They are not explicitly backed by the governments but they have implied Government backing and implied Aaa/AAA rating. Read more

October 20, 2009 | Filed Under Fundamental Analysis, Mutual Funds | Leave a Comment

Money Market Basics

Money market is a part of fixed income market. It is a wholesale market. Fixed income market financial instruments with maturity period less than 1 year are traded in money market. Liquidity in money market is very high. From the point of view of liquidity, holding a money market security is as good as holding cash or money and hence the name.

Money market is a collection of Over The Counter s (OTCs) where short term lending and borrowing happens. Many times the period of lending or borrowing is as short as ‘over night’. Most of the transactions in the money market are conducted by banks, central bank (reserve bank in India) financial institutions, Corporates and specialists. Read more

June 21, 2008 | Filed Under Bonds | 2 Comments

Bond Market/Fixed Income Market Basics

A bond is a basic financial instrument issued by a borrower or debtor to lenders or investors. The issuer repays the amount borrowed and interest on the borrowed amount over the period of borrowing.

Issuer:
An issuer is a borrower or debtor of funds who issues bonds to investors to raise money to meet its financial needs like improving infrastructure, expansions, mergers, acquisitions.

Types of issuers:
The following entities issue bonds either in domestic or in foreign markets.

Central or Federal governments and state governments
Municipal corporations and government subsidiaries like electricity boards.
Corporates

The issuer of a bond greatly influences the nature of the bond. The bonds issued by the central or federal governments are considered to be low risk bonds because the central or federal government can always print money and payback if it could not generate money from taxes. These are also called treasury bonds.

Bonds issued by municipal corporations are riskier compared to treasury bonds. But these can also be backed by local tax receipts i.e. if it could not repay the money the investor can raise them. Read more