11 August,2026 03:00 PM IST | Mumbai | mid-day online correspondent
Representational Image. File pic.
Debt instruments or fixed income instruments are essentially contractual obligations where one party lends money to another with the repayment schedule clearly stipulated in the contract.
A common type of debt instrument is your bank fixed deposit. You lend money to the bank for a fixed tenure, and the bank repays this amount with interest, post the maturity of the contract. So, while debt instruments are used to raise capital, investors get to earn higher returns on the amount invested.
Debt instruments, unlike the equity investments, are generally considered to have lower risk. Take for example government bonds or securities which are a type of debt instrument.
Issued by the Central government, the short-term securities are usually referred to as treasury bills, with a maturity of less than one year and the long-term instruments having a maturity of more than one year are called government bonds or dated securities.
As they are issued by the government, they are considered to no default risk, and hence the interest rate is lower. Government bonds are therefore referred to as risk-free gilt-edged instruments. Government securities capture a major part of the debt market in India and globally.
Similarly, state governments can also issue debt instruments but they can issue only bonds or dated securities, which are called the State Government Securities.
Corporates too raise finance through debt papers such as commercial papers, corporate bonds or non-convertible debentures and their interest rates are slightly higher than government bonds due to the default risk. This is essentially the risk premium that companies are paying or the investors are charging for bearing the default risk.
Non-banking financial companies (NBFCs) normally issue commercial papers, non-convertible debentures to raise money. Scheduled commercial banks issue certificates of deposits targeted at institutions, companies, and mutual funds, with a minimum investment amount typically starting at Rs 5 lakh.
The equity market is regulated by the Securities and Exchange Board of India (SEBI), while the debt market is regulated by both the Reserve Bank of India and SEBI.
The risk involved is lower in a debt instrument as the interest rate and the time period are fixed. In the equity market, the stock prices are volatile and there is a risk of incurring a loss if the stock prices fall much lower than the purchase cost.
However, the investment in debt market varies from the equity markets, as investors are only creditors having loaned the amount and not the part owners of a company.
