EZBond LearnReference
Bond & NCD glossary
Every term you will meet on an Indian bond or NCD listing, defined in one paragraph. Written for someone with the bond in front of them, not for a trading desk.
53 terms
A
- Accrued interest #
- The share of the next coupon that has already been earned by the seller of a bond between the last coupon date and the settlement date. On a secondary trade the buyer pays clean price plus accrued so nobody is short-changed on interest for days they did not hold the bond.
- Additional Tier 1 bond, issued by banks to meet regulatory capital. Perpetual, with a call option, and coupons that the bank can skip without triggering default. Ranks below all other debt on payout. YES Bank AT1s were written off in 2020, which is why the label matters more than the coupon.
B
- Bond #
- A tradable IOU. The issuer promises to pay a fixed coupon on set dates and return the face value at maturity. In India the word is used interchangeably with debenture; the legal instrument for corporate issuers is technically a debenture.
- Bond ladder #
- A portfolio of bonds bought so their maturities are spread evenly across years. As each rung matures the cash is reinvested at the far end. Smooths reinvestment risk and keeps some money coming free every year without market-timing rates.
- Book building #
- The pricing method for a public issue where anchor and institutional bidders name the coupon they will accept. Retail investors then subscribe at the discovered coupon. Common for large NCD public issues.
C
- A bond the issuer can redeem before maturity, on set dates, at set prices. Good for the issuer when rates fall, so you should read the yield to call, not just the yield to maturity, when a call is close.
- Clean price #
- The quoted price of a bond, excluding accrued interest. Screens and listings show clean; the amount that actually settles into your bank is dirty price.
- A bond that can convert into shares of the issuer, either on schedule (compulsory) or at the holder’s choice (optional). Trades on both interest-rate and equity signals.
- Coupon rate #
- The fixed annual interest rate printed on the bond, expressed as a percentage of face value. A 9% bond of face value ₹1,000 pays ₹90 a year. Coupon does not change; yield does.
- Credit rating #
- An opinion by a rating agency on how likely the issuer is to pay on time. AAA is the top; anything below BBB- is speculative. The rating is an opinion, not a guarantee, and it changes.
- Credit risk #
- The risk the issuer fails to pay coupon or principal in full and on time. The rating is a shorthand for it, but sector, leverage, and cash flow tell you more.
- Current yield #
- Annual coupon divided by the current market price. A quick read on running income, but ignores capital gain or loss between now and maturity, so it flatters discount bonds and understates premium ones.
D
- Debenture #
- The legal form of a corporate bond in India. Every corporate bond you buy is a debenture; NCD, secured NCD, and so on are subcategories of debenture.
- Debenture trustee #
- A SEBI-registered entity that holds security on behalf of debenture holders and enforces terms of the trust deed if the issuer defaults. You are told who it is in the issue documents.
- Default #
- The issuer fails to pay a coupon or principal on the due date, or breaks a covenant that lets holders declare a default. Rating drops to D. Recovery depends on collateral and the trustee’s enforcement.
- Demat #
- Holding a security as an electronic entry in a depository account (with NSDL or CDSL) rather than paper. Bonds you buy on NSE or BSE settle into your demat account and pay coupons to the linked bank.
- Dirty price #
- Clean price plus accrued interest. This is the actual cash amount that settles for a secondary bond trade.
- Duration #
- A measure of how much a bond’s price moves for a small change in interest rates. Higher duration means bigger price swings. A 5-year bond typically has more duration than a 2-year one, and a zero-coupon has the most for its maturity.
F
- The par amount printed on the bond, which is what the issuer returns at maturity and what the coupon percentage is calculated on. Indian corporate bonds commonly have a face value of ₹1,000 or ₹1,00,000.
- Floating rate bond #
- A bond whose coupon resets periodically to a reference rate plus a spread — for example, three-month T-bill plus 150 bps. Coupon rises with rates and falls with them.
G
- Government of India security. Sovereign risk, so credit risk is negligible; the whole risk is interest-rate risk. Retail investors can hold G-Secs directly through RBI Retail Direct.
H
- Haircut #
- The percentage a claim is written down in a resolution. If a corporate defaults and the trustee recovers 60 paise per rupee, the haircut is 40%.
I
- International Securities Identification Number. Every listed bond has one; you can look up a specific ISIN on NSE, BSE, or NSDL to see terms, ratings and trade history.
L
M
- Market lot #
- The smallest quantity you can trade on the exchange. For most corporate bonds the market lot is one bond of ₹1,000 face value, but some issues use a ₹10,00,000 lot, which effectively locks retail out.
- The date the issuer returns face value and the bond ends. Also used to mean the remaining time until that date, as in "five years to maturity".
- Modified duration #
- The percentage price change of a bond for a 1% change in yield. A modified duration of 4 means the price falls about 4% if the yield rises by one percentage point.
N
- Non-convertible debenture. A corporate debenture that cannot be converted into shares. In India, this is the most common form of listed corporate bond retail investors buy.
- National Securities Depository Limited. Along with CDSL, one of two depositories that hold your demat securities. Bond coupons are credited to the bank account linked to your demat.
P
- Par #
- Face value. Trading at par means the price equals face value; above is premium, below is discount.
- Perpetual bond #
- A bond with no fixed maturity. The issuer pays coupons forever, or until they call it. AT1 bank bonds are the common Indian example.
- Premium and discount #
- A bond priced above face value is at a premium, below is at a discount. A bond at a discount has a yield higher than its coupon; a bond at a premium has a yield lower than its coupon.
- Primary market #
- Where new bonds are issued, either through a public issue open to retail or a private placement to institutions. Buying in primary means buying directly from the issuer at issue price.
- Public issue #
- A bond issue open to retail subscription, filed with SEBI, with a printed prospectus. Different from a private placement, which is limited to institutions and select investors.
- A bond the holder can force the issuer to redeem early, on set dates. Good for the holder if rates rise or credit quality slips.
R
- Rating watch #
- A signal from a rating agency that the current rating is under review and likely to change soon, in a stated direction (positive, negative, developing). Not a rating change yet, but often the last step before one.
- Redemption #
- Repayment of the face value at maturity, or earlier if the bond is called or put. For a plain vanilla bond this is one lump sum on maturity date.
- Repo rate #
- The rate at which RBI lends short-term to banks. When the repo moves, floating-rate coupons reset and fixed-rate bond prices adjust. The base signal behind most Indian short-tenor yields.
S
- Securities and Exchange Board of India, the regulator for listed securities including corporate bonds and NCDs. Sets disclosure, issue and trustee rules.
- Secondary market #
- Where existing bonds trade after issue. In India this is NSE and BSE for listed bonds, and OTC deals negotiated over phone or on platforms like RFQ for wholesale amounts.
- Secured NCD #
- An NCD backed by specific charge over the issuer’s assets. On default the trustee can enforce that charge on behalf of holders. Recovery is not guaranteed, but the security ranks ahead of unsecured claims.
- Senior debt #
- Claims that get paid first in a wind-up. Secured senior debt is at the top; subordinated and hybrid debt come below. Where a bond sits on this ladder is often more important than the coupon.
- Settlement #
- The day cash moves from your bank and the bond moves into your demat account (or the other way for a sale). Indian bond secondary trades settle T+1 for retail lots on the exchange.
- Debt that ranks below senior debt in repayment order. Higher coupon to compensate for that. Tier 2 bonds issued by banks are the common Indian example.
T
- Tax #
- Bond coupon income is taxed at your slab rate as "income from other sources". Capital gain on selling a listed bond before maturity is taxed under capital gains rules. Confirm rates and holding periods for your assessment year.
- Tax Deducted at Source. The issuer withholds tax from the coupon before paying it to you and deposits it against your PAN. From FY 2023–24, TDS applies to listed demat NCDs above a threshold; the coupon is still fully taxable at your slab in your return.
- Tier 2 bond #
- Subordinated bond issued by a bank as regulatory Tier 2 capital. Coupons cannot be skipped like AT1, but claims rank below all other debt except AT1 and equity.
- Trustee #
- Short for debenture trustee — see the separate entry.
U
- Unsecured NCD #
- An NCD not backed by any charge on assets. On default holders rank as ordinary unsecured creditors. Typically pays a higher coupon than a secured NCD from the same issuer.
Y
- The return you would earn if the issuer called the bond on the earliest possible call date, at the call price. For callable bonds trading near the call price, this is usually the more honest number than yield to maturity.
- The single discount rate that makes the present value of all remaining coupons plus final face value equal the price you pay. The one number that compares two bonds on the same footing.
Z
- Zero coupon bond #
- A bond that pays no coupon. You buy it below face value and receive face at maturity; the return is entirely the price difference. Duration equals maturity, so price is very sensitive to rate moves.