Debt Instruments

Why in the News?

The rise in interest rates has brightened prospects for debt investment.

Key Points:

About

Debt Instrument

• A debt instrument is a fixed-income asset in paper or electronic form. 

  • For Example Bonds, debentures, leases, certificates, bills of exchange, and promissory notes.
• These instruments also give market participants the option to transfer the ownership of debt obligation from one party to another.
• Debt instruments provide fixed and higher returns, thus giving them an edge over bank fixed deposits. 
• The duration of debt instruments can either be long-term or short-term. 
  • Funds raised through short-term debt instruments are to be repaid within a year.
• It allows the lender (or giver) to earn a fixed interest besides getting the principal back while the issuer (or taker) can use it to raise funds at a cost.               

Importance:

• It makes the repayment of debt legally Enforceable.
•  It increases the transferability of the obligation.