Fixed Income >> Gilts >> Glossary

Accrued interest

The amount of interest that has accrued since the last coupon payment.

Clean price

The agreed upon price of a security, excluding the accrued interest.

Coupon rate

Every government security carries a coupon rate also called as interest rate, which is fixed. e.g. 12.00% GOI 2008 where 12.00% is the coupon rate payable on the face value which is maturing in the year 2008.

Credit risk

The risk that the institution to which the money has been lent will not be able to repay it on maturity. In case of G-Secs, since the borrower is the Government, this risk is minimal (the Government of India has never defaulted on its debt obligation).

Current price

As these G-secs are traded in the secondary market the price of these G-secs fluctuates according to the demand/supply in the market for that security. The current price is the prevailing price in the secondary market.

Default risk

The risk that the borrower will not be able to service its debt obligations.

Dirty price

The agreed upon price of a security, including the accrued interest.

Face value

The par value of the security. (The issue price may be at a discount or a premium to the par value).

Non competitive bidding

In order to encourage retail investors to participate directly in auctions, the Reserve Bank of India reserves about 5% of the notified amount for non competitive bidding i.e. investors have to indicate the amount they are willing to invest in government securities (rather than bid). The investment under non competitive bidding has to be in the range of Rs 10,000 to Rs 10,000,000 (face value). Securities are allotted to these investors at the weighted average price of all the successful bids.

Price risk

The risk that the price of the debt paper will be impacted by change in interest rates. All debt securities, including government paper, carry this risk - so if the interest rates move up, the market price of the debt paper will be adversely impacted. One way to minimise the price risk is to hold the security till maturity.

Primary dealer

Primary dealer is an intermediary who buys and sells government securities and treasury bills. He is authorised by the RBI.

Secondary market

Like the stock market where stocks are traded there is a secondary market where the debt instruments like gilts, bonds and treasury bill can be bought and sold.

Wholesale price index

A wholesale price index is an index of prices of select commodities. The percentage in the index reflects the inflation/deflation.

Yield

Yield is the actual return on the investments. There are different types of yield

  1. Coupon yield: Coupon yield is the fixed interest rate on a government security or bond e.g. 12.00% GOI 2008 where 12.00% is the coupon yield. This yield does not reflect the change in the interest rate, inflation rate or any other economic factor.

  2. Current yield: Current yield is the return on the government security or bond depending on its purchase price.

    e.g. An investor 'A' purchases 12.00% GOI 2008 at Rs 100 and an other investor 'B' purchases the same instrument at Rs 110.
    The current yield of investor 'A' will be =12.00%
    The current yield of investor 'B' will be =10.91%

  3. Yield to Maturity (YTM): Yield to maturity is the discount rate that equates present value of all the cash inflows to the cost price of the government security or bond. This is actually the Internal Rate of Return (IRR) of the government security or bond.

G-Sec Resources
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  • G-Secs Glossary
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