Characteristics of debt instruments

The main characteristics of a debt instrument is as follows:

• Ease of Issue

Any company with or without prior track record can issue debt instruments.
• Fixed or floating rate of interest

These instruments can be floated with fixed or floating rate of interest and for any tenure.
• Impose fixed commitments on servicing

While being flexible in the nature of interest and tenure at the time of issue, these instruments impose fixed commitments on the business. In other words, irrespective of the performance of the business, servicing of such instruments in the form of interest and principal repayments would have to be made. Failure to do so would be termed as default with severely adverse impact on the company’s standing in the financial community.
• Low risk, return characteristics

Investors in such instruments being creditors of the company have priority over equity and preference shareholders in receiving return (in the form of interest) in such instruments. Carries priority claim on the assets of the firm (if secured) in the event of bankruptcy.

Type of debt instruments

We would look forward to receiving your feedback and suggestions on this module at services@indiamarkets.com