Debt Market – Meaning, Types, Features, Debt Market vs Equity Market

Debt Market-Meaning-What is Debt Market Definition-Types of Trades in Debt Market-Types of Risk in Debt Securities Examples of Debt Market Features

Debt capital markets are marketplaces for debt issued by governments, agencies, financial institutions, and corporations in the form of marketable securities or bonds. Let us understand what is debt market meaning, examples, types, feature along with difference between debt market vs equity market.

Bonds are often exchange on the secondary market, which serves a broad range of investors. Bond terms vary, as do the risks that issuers accept. Before we start with the topic, you should read common markets to understand the debt market.

What is Debt Market Meaning?

Investors buy and sell financial instruments, primarily bonds. India has the largest debt market in Asia. Like many others, the debt market is view as an alternative to banks.

G-Sec and corporate bonds dominate India’s debt market. G-Sec is issue by both the federal and state governments. Moreover, G-Secs are sovereign securities issue by the Reserve Bank of India on behalf of the government to finance its fiscal deficit (RBI). Bonds issued by financial institutions, governments, and enterprises are include in the non-Gsec market.

When a corporation sells bonds, it must pay bondholders interest, which increases debt. Bondholders do not own a piece of the company or have any say over how much money it produces in the future. Although, the borrower is simply required to repay the loan plus interest.

For two reasons, bonds are regard as less hazardous than equities. Bond returns, for starters, are less volatile than stock returns. Second, if the company goes bankrupt, bondholders are paid first.

What is Equity Market?

Stocks can be purchase or sold on the stock exchange. Shares can assist a firm in earning money. As the company grows, the value of its shares rises. Many traders buy and sell stocks fast, but you can keep them for a long period. With a Demat and trading account, buying and selling stocks is made simple.

Political, economic, national, and global events all have an impact on the stock market. Investors are wary because the stock market is more volatile.

Debt Market vs. Equity Market

If you want to invest in the stock market, you need be familiar with the terms. It also assists you in deciding what to invest in. You should be familiar with the difference between debt market vs equity market.

Debt markets are less hazardous than equity markets. The debt market is a consistent source of revenue. Debt market returns, on the other hand, are frequently lower than stock market returns.

The stock market is where shares are tradable. On the debt market, you can also buy and sell debt products.

Types of Debt Market Transaction


Loans made only by the company with a fixed interest rate. Moreover, there are two types of debentures: changeable and non-changeable.


Bonds can be issue by both governments and enterprises. Purchasing bonds is equivalent to paying money to the firm that issued them. The loan is repaid with interest over time by the borrower.

Government Bonds

They are order by the government. Can be rent for a short or extended period of time. T-bills are bills with a maturity date of less than a year. Government bonds, often known as Dated Securities, have a longer maturity.

Types of Stock Market Trading

Intraday Trading

The purchasing and selling of stocks and other financial instruments inside the same trading day is refer as intraday trading. In other words, intraday trading implies that all positions are close before the market closes and that no ownership changes occur.

Position Trades

Long-term trading strategy position trading is well-known. So, it enables traders to hold positions for months or years at a time. Short-term price changes are ignore by position traders. Instead, they focus on fundamentals and long-term trends.

Buy Today Sell Tomorrow (BTST)

Short-term volatility is use to profit from BTST transactions. This service allows traders to sell shares before they are sent to or credit to their demat account.

With this knowledge, you will be able to differentiate between different types of investments, risks, and returns on the stock and debt markets. When you compare your investment choices to your goals and objectives, you will become a better investor.

Types of Risks Associated with Debt Securities

Risks associated with debt securities include:

Interest Rate Risk

The risk that the yield on current instruments will fall if market interest rates fall. Although, the higher the interest rate risk, the longer a bond is held.

Risk by Default

This is the risk that a bond issuer will fail to pay interest or principal on time or will otherwise fail to comply with the bond indenture. “Risk of credit”

Rate of Reinvestment Risk

It is the possibility that if interest rates decline, you will be unable to invest your regular profits at higher rates. When an investor is unable to use investment cash flows to support fresh investments, he or she faces reinvestment risk. This is refer as the reinvestment rate.

Uncertainty in Prices

The danger that a security or investment will lose value is refer to as price risk. Pricing risk can also be influence by unprofitable business management and shifting prices. Diversification is a common and effective method for mitigating price risk.

Counter-party Danger

It denotes that the opposing party was unable or refused to deliver the pledged security or sale price at settlement.

Features of Debt Market

The prime rate on government debt is the risk-free rate. This rate is use to compute debt interest rates. Investors evaluate risk by evaluating the best available loans and interest rates. Prices are also influence by market sentiment and timing. When deciding whether or not to invest, investors evaluate four major factors.

  • The issuer’s dependability is investigate by a credit rating agency
  • When is the debt going to be paid off? Most people assume that maturities with shorter maturities are safer.
  • The size of an issue and the frequency with which it is borrow demonstrate how supply and demand are balance.
  • Comparables the price of a bond is decide by similar credits.

With all of this in mind, investors prefer a fixed yield, or the total return on a bond transaction. Investors should be aware of the bond’s length, price, and coupon. Bond prices change due to factors such as interest rates and market performance.


Debt Markets exchange bonds issued by central and state governments, municipal corporations, and government agencies, as well as structured finance products.

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