What is a debenture?

Debenture is one of the financial securities traded in capital markets.

It is defined as a long-term promissory note for raising loan capital where the company promises to pay interest and principal as stipulated.

Who can issue debentures?

Debenture can be issued by both corporations and governments.

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An alternative form of debenture is a bond, mostly issued by public sector companies.

What are the features of debentures?

  1. Debenture is a form of loan capital for the company.

  1. The purchaser of debenture is called debenture holder. So, a debenture holder is a creditor of the company.

  1. The par value of a debenture is the face value mentioned on the debenture certificate.

  1. The interest rate on a debenture is fixed and known at the time of purchase. Interest is a percentage of this par value.

  1. The legal agreement between company and debenture holder is called indenture or debenture trust deed. It includes the specific terms of the agreement, description of debenture, rights of debentures holder, etc.

  1. Debenture can either be secured or unsecured. Secured debenture is secured by lien on the company’s specific asset. However, unsecured debenture is not protected by any security.


  1. The credit rating of debenture indicates the degree of its safety. Credit ratings are provided by Credit Rating and Information Services of India (CRISIL) and few other rating companies like CARE and ICRA in India.

  1. Companies issue debenture in different denominations. But, public sector companies issue bonds in the denomination of Rs. 1000.

  1. Debenture is issued for a specific period of time.

  1. The maturity of debenture is the time period until the company returns the par value to debenture holder and terminates the debenture. Usually, a debenture is redeemed after 7 to 10 years of payment.

What are the advantages of debentures?

  • Fixed and stable interest income.
  • Definite maturity period
  • Ease of trading and liquidity


  • Comparatively safer investment as debenture holder has specific or a floating charge on the secured asset of the company
  • Preferential right of payment at the time of liquidation of the company
  • Interest is protected as per indenture provisions and SEBI guidelines

What are the disadvantages of debentures?

  • No voting rights
  • Returns limited to the extent of interest, irrespective to higher or lower earnings of the company
  • No share in profits


  • Debenture holder is only creditor to the company, has no ownership of company
  • Interest on debentures is fully taxable

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Understanding Capital market

Capital market facilitates buying and selling of financial securities such as shares, bonds or debentures.

Capital market channels savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals.


It has two mutually supporting and indivisible segments: the primary market and the secondary market.

Intermediaries such as investment bankers, merchant bankers, stock brokers, etc. play an important role in trading of securities in both the markets.



Primary market

In the primary market companies issue new securities to raise funds. Hence, this market is also known as the new issues market.

New or listed companies make public issue of shares which implies that the securities are sold to public including all individuals and institutional investors.

Public issue by new companies for the first time is called the initial public offering (IPO).


In this market, companies interact directly with investors.


Secondary market

The secondary market deals with second-hand securities ie. securities which have already been issued by companies that are listed in stock exchange.

These securities are listed and traded in the stock exchange. Hence this market is also known as the stock market.


In this market, investors interact with themselves.

Secondary market may also include over the counter (OTC) market and derivatives market.


The secondary market determines the price and risk of the securities issued.

This is helpful for both listed companies and investors to act in primary market.


The operations of primary and secondary markets in India are regulated by Security Exchange Board of India (SEBI).

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Types of Mutual Fund schemes

Mutual Fund schemes available are specific to investor needs such as financial position, risk tolerance and return expectations etc.

These can be classified by:


  1. Open-end Funds

Open-ended funds are MFs which can issue and redeem their shares at any time.


Investors can conveniently buy and sell units at the existing NAV of the scheme.

There is no fixed maturity of these funds.

Key feature: liquidity of funds.

  1. Close-ended Funds

Close-ended schemes are MFs with a fixed no. of shares (or units) which are issued through a New Fund Offer (NFO).

The fund is open for subscription only during this specified period.


The fund is then structured, listed and traded on stock exchange. Investors can buy or sell the units on this stock exchange.

Some close-ended funds also give an option of selling back the units to the MF through periodic repurchase at NAV related prices.

They have stipulated maturity period (usually 3 to 15 years).

Key features: fixed no. of units, limited availability.


  1. Interval Schemes

Interval schemes combine features of both open-ended and close-ended schemes.


The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV-related prices.

Key features: features of both open-ended and close-ended schemes.

Investment Objective

  1. Growth or Equity-Oriented Schemes

The aim of growth funds is to provide capital appreciation over the medium to long-term.


These schemes usually invest majority of their portfolio in equities and so have comparatively high risks.

Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Key features: capital appreciation over the medium to long-term.

It can be further classified into following depending upon objective:

  • Large-Cap Funds: invest in companies from different sectors largely in BSE 100 and BSE 200 Stocks.
  • Mid-Cap Funds: invest in companies from different sectors largely in BSE Mid Cap Stocks.
  • Sector Specific Funds: invest in a particular sector eg. IT.
  • Thematic: invest in various sectors but restricted to specific theme e.g., services, exports, consumerism, infrastructure, etc.
  • Diversified Equity Funds: all non-theme and non-sector funds.
  • Tax Savings Funds (ELSS): investments in these funds are exempt from income tax at the time of investment.
  1. Income or Debt oriented Schemes

The aim of Income Funds is to provide regular and steady income to investors.


These funds generally invest in fixed income securities such as bonds, corporate debentures and Government securities and money-market instruments. So, the opportunities of capital appreciation get restricted.

These funds do not participate into markets. Hence, there is no market risk or volatility and are less risky compared to equity schemes.

Key features: regular and steady income to investors.

  1. Balanced Funds

The aim of Balanced Funds is to provide both growth and regular income.


These schemes invest both in equities and fixed income instruments in the proportion indicated in their offer documents.

Balanced funds are ideal for investors looking for income as well as moderate growth.

Key features: capital appreciation and regular income to investors.

  1. Money Market Funds or Liquid Funds

The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income.


These funds exclusively invest in safer short-term instruments such as Treasury Bills, Certificates of Deposits, Commercial Paper and inter-bank call money, Government Securities, etc.

Fluctuations in returns of these schemes are much less than other funds.

These are appropriate for investors who wish to invest for short periods.

Key features: easy liquidity, preservation of capital and moderate income.


  1. Gilt Funds

These funds invest exclusively in Government Securities.

  1. Fund of Funds Schemes

Fund of Funds invests in other MF schemes.

Such schemes can help investors reduce their chances of selecting a wrong MF.

  1. Gold Exchange Traded Funds

It is an open-ended Exchange Traded Fund which provides return that is in line with the return on investment in physical gold.


  1. Floating Rate Funds

These are open-ended income schemes which invest equally in floating rate debt instruments and fixed rate debt instruments.

Other Schemes

  1. Tax Saving Schemes or Equity linked Savings Schemes (ELSS)

Investments in these funds are exempt from income tax at the time of investment upto Rs. 1,50,000 per annum under Section 80C.


ELSS have a lock in period of 3 years.

  1. Index Schemes

Index schemes replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc.

  1. Sectoral Schemes

Sectoral Funds are those which invest exclusively in a specified sector(s) such as FMCG, IT, Pharmaceuticals, Infrastructure, petroleum stocks, etc.


While these funds may give higher returns, they are more risky compared to diversified funds as their portfolio is restricted to the specific sectors.

  1. Load or No-Load Funds

A load fund is one that charges a percentage of NAV for exit ie.

A charge is payable each time one sells units in the fund.

This charge is used by the MF for marketing and distribution expenses.

  1. Dividend Payout Schemes

As and when MF companies make profits, part of the money is distributed to the investors by way of dividends.


  1. Dividend Reinvestment Schemes

This is similar to the previous scheme.

However, the dividend declared is re-invested in the same fund on the same day’s NAV.

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Mutual fund basics

What is a Mutual Fund (MF)?

A mutual fund is a trust that pools money of like-minded investors with similar investment objective.

These MF schemes are managed by respective Asset Management Companies (AMC).

The AMC hires a professional money manager, who buys and sells securities in line with the fund’s stated objective.


The pooled money is invested in a diversified portfolio of securities including equity shares, debentures, convertibles, bonds, money market instruments or other securities.

Each unit of any scheme represents the proportion of pool owned by the investor (unit holder).

How do I get returns on a MF?

Returns on a MF are earned in the form of:

  1. Dividends- Unit holders earn dividends on MFs, which are distributed from the income generated through dividends on stocks and interest on other instruments.


  1. Capital gains- If the fund sells securities that have appreciated in value, it earns capital gains. These capital gains are usually distributed to investors.
  1. Profit from higher NAV- Increase in value of fund’s asset increases the NAV of the fund. An investor can make profit by selling back their units to the fund house.


What is Net asset value (NAV)?

NAV is the appreciation or reduction in value of investments which is regularly declared by the fund.

NAV per unit is calculated as:


What are the benefits of MFs?

  • Diversification- MF portfolio includes a wide variety of investments in order to mitigate risks.


  • Flexibility- MFs offer a variety of plans such as regular investment, regular withdrawal and dividend reinvestment plans. Depending upon your preferences and convenience, you can invest or withdraw funds, accordingly.
  • Liquidity- Investors can buy or sell an open-ended scheme from the fund house anytime. Close-ended schemes too can be sold on the stock exchange. Few close-ended and interval schemes allow direct repurchase of units from time to time.


  • Cost Effective- MFs are less expensive as compared to direct investment in the capital markets.
  • Professional Management- MFs are managed by experienced and skilled professionals who research and analyse the performance and prospects of various instruments before selecting a particular investment.


  • Transparency- MF fact sheets, offer documents, annual reports and promotional materials provide high degree of transparency.
  • Return Potential- Depending on the investment portfolio, the MFs offer a chance of higher potential of returns.


  • Choice of Schemes- There are wide variety of MF schemes available to suit each investor.
  • Well Regulated- MFs in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which strives to protect the interests of investors.

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Do I need critical illness insurance?

Critical illness (CI) insurance is a long-term insurance policy to cover specific serious illnesses listed within a policy.

If diagnosed with a serious illness, the insurance company will provide single lump-sum payment.


The payment is made when you survive a certain period (typically a month) after confirmation of the diagnosis.

You can buy a CI cover either for yourself or jointly with your spouse.

What is covered?

The number of critical illnesses varies from insurer to insurer. Most insurance companies cover:

  • Cancer of specified severity
  • Angioplasty
  • Heart attack of specified severity
  • Open heart replacement or Heart valve surgery
  • Surgery to aorta
  • Cardiomyopathy
  • Primary Pulmonary hypertension
  • Open chest CABG
  • Blindness
  • Chronic Lung Disease
  • Chronic Liver Disease
  • Kidney failure
  • Major organ/ bone marrow transplant


  • Apallic Syndrome
  • Benign Brain Tumour
  • Brain Surgery
  • Coma of specified severity
  • Major Head Trauma
  • Permanent paralysis of limbs
  • Stroke resulting in permanent symptoms
  • Alzheimer’s Disease
  • Motor neurone disease with permanent symptoms
  • Multiple Sclerosis with persisting symptoms
  • Muscular Dystrophy
  • Parkinson’s Disease
  • Poliomyelitis
  • Deafness
  • Loss of Speech
  • Medullary Cystic Disease
  • Systematic lupus Eryth. w. Renal Involvement
  • Major Burns
  • Aplastic Anaemia


What is excluded?

  • Death within 30 days of diagnosis of CI or surgery.
  • CI diagnosed within first 90. days from the inception of policy.
  • HIV/AIDS infection
  • Illness due to smoking, tobacco, alcohol or drug intake.
  • Any dental care or cosmetic surgery


  • Illness occurring due to internal or external congenital disorder.
  • Critical conditions or consequences due to pregnancy or childbirth, including caesarean.
  • Infertility treatment
  • Hormone replacement treatment
  • Treatment done outside India
  • War, terrorism, civil war, navy or military operations


What are the benefits of CI plan?

CI benefit irrespective of hospitalization

Hospitalization is not required because diagnosis is enough to get CI benefits.


On submitting medical documents confirming diagnosis, you will receive a single  lump sum amount.

Financial support


You can spend the money to pay for cost of your treatment, recuperation expense, clear any debts, pay your rent or mortgage, pay for medical bills or to adapt your home to your particular needs.

Tax-free payout

The one time lump sum amount paid on diagnosis of a serious illness is tax-free.


Protection against untimely death

In case of an untimely death, your nominee will receive the lump sum payout. However, this amount is paid only when you survive the 30 day period after diagnosis of an illness.

What to consider before you buy a CI plan?

CI plan does not cover hospitalization costs. The lump sum paid is as per your policy amount.


So you will still require a health insurance plan to meet these expenses.

Also, the policy has well-defined terms and conditions for diagnosis of an illness.

For instance, you need to undergo specific tests, by specific physician to confirm diagnosis of the illness.


Payout is made only for the specific illness (as per the severity mentioned in the policy). There are many illnesses which are excluded.

Do consult your financial advisor to help you understand the policy details before buying a critical illness plan.

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Pension plans

While retirement may seem distant for many, retirement security is as important as any of your other financial goals.

Due to rising cost of living, inflation and increased life expectancy, financial planning is essential to live a happy and comfortable life after retirement.

Pension plans or retirement plans are one of the tools available to build a retirement corpus.


Pension plan provides regular fixed monthly pension at the end of the period for lifetime. Investment is made by paying premiums to build a corpus which is invested in various funds.

Insurance companies, Mutual fund companies and Government provide pension plans with unique benefits.


For instance, Insurance companies provide pension plans with the waiver of premium rider or partner care rider.

In the event of an unforeseen calamity like death, the future premiums will be waived off.

The Insurance company will pay the future premiums on your behalf. This will ensure that your nominee receives the same pension till the end of the period.

Do consult your financial advisor to choose the appropriate plan as per your requirements.


Types of pension plans:

Immediate Annuity

In immediate annuity, the pension begins immediately. You have to pay a lump sum amount and your pension will start instantly.

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The pension you receive will be based on the lump sum you have invested.

Deferred Annuity

In deferred annuity, pension does not commence immediately. It is ‘deferred’ up to a time, which is decided upon by you.

This implies that you have to pay the premiums till the policy term, after which you will start receiving your pension.


Premiums can be paid as single premium or as regular premium.

With cover pension plan

‘With cover’ plan provides life coverage which implies that in case of death, a lump sum amount is paid to your family.

However, the cover amount is not very high as major part of the premium is invested to build the retirement corpus.


Deferred annuity plans are available with cover.


Without cover pension plan

‘Without cover’ implies that you do not get any life cover.

In case of death, your family will receive the accumulated corpus till the date of your death.


Immediate annuity plans are available without cover.

Annuity Certain

The annuity is paid for a specific period as chosen by you.

In case of death before this period, your beneficiary would receive the annuity.

Guaranteed Period Annuity

Annuity is paid for certain periods whether or not you survive that duration.

Life Annuity

In a life annuity plan pension is paid until death.


If you choose ‘with spouse’ option, then in case of death, the pension is paid to your spouse.

National Pension Scheme (NPS)              

NPS has been introduced by the government. The amount you save in NPS will be invested in equity and debt.


You have the option of withdrawing 60% of the amount at retirement and the remaining 40% has to be used to purchase annuity.

The maturity amount is not tax free though.

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