There is no clear cut difference between the two terms and they tend to be used interchangeably. At a very broad level, governments and central banks issue bonds and companies issue debentures.

Face value is the value of a single bond as determined by the issuer of the bond. The face value of a bond can be as low as Rs.100 or as high as Rs.10 lakhs. Bonds with higher face values can also be issued but may be open to select investors only.

There will be no bond certificates issued by the company. The bonds and debentures are available in demat form only. The bonds will be transferred from the seller's demat a/c to the buyer's demat a/c on receipt of payment by the buyer. Therefore, it is compulsory for the buyer to have a demat a/c if he wants to buy secondary market bonds through us.

Clean price is the prevailing price of a bond or debenture in the market. It is quoted by the seller to the buyer. Clean prices in India are quoted in Rs.100 and multiples of 1 paise. This is irrespective of the face value of the bond.

To explain this, let us take the example of a Tax free bond:

8.66% IIFCL 2034 with interest payment date of January 22^nd every year.

A customer would like to buy this bond in the secondary market and date of payment/settlement by the client is fixed as Dec 30th, 2014.

Let us calculate no. of days between last interest payment date and date of settlement:

December 30^th, 2014 and January 22nd, 2014 = 342 days.

Interest payable on January 22^nd, 2015 will be paid to the new owner of the bond whose holding period will be only 23 days (365 – 342 days). The interest payable by the company will be for 365 days.

Therefore, interest for the intervening period of 342 days will need to be paid by the buyer to the seller.

Calculation of accrued interest for 342 days = Rs.8.66 / 365 * 342 = Rs.8.11.

The accrued interest is added to the price of the bond and is part of the total amount paid to the seller by the buyer.

The date on which the buyer agrees to make the payment to the seller and the seller in turns agrees to transfer the bonds to the buyer.

DCS is a confirmation issued by the seller of the bond to the buyer confirming the following particulars of the bond sale:

1. Name and issuer of bond
2. Maturity Date
3. Interest rate and dates of payment
4. Deal and settlement dates
5. Face Value of the bonds and no. of bonds being purchased
6. Accrued Interest
7. Total amount to be paid by buyer
8. Mode and beneficiary of payment

It is issued by the seller and has to be accepted by the buyer of bonds.

The payment is to be made on the date of settlement via RTGS favouring Indian Clearing Corporation Ltd. (ICCL). ICCL is the clearing house for the Bombay Stock Exchange. The RTGS details will be mentioned on the DCS which will be emailed by NJ to the partner and his RM.

RTGS stands for Real Time Gross Settlement and is defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis without any delay. The minimum amount that can be transferred via RTGS is Rs.2 Lacs. There is no upper limit.

The cutoff time for the RTGS payments for bonds and debentures is 3.00 p.m. on any working day. RTGS can be done either through online banking or by visiting the bank branch:

1. For Online Banking, the customer will have to register the payee details for third party transfer and the bank may take between 12 – 24 hours to activate the payee. Only after the payee has been registered by the bank, will the customer be able to make a RTGS payment.
2. If the customer approaches his bank branch, he will have to fill up an RTGS application form and give a cheque favouring “Yourself” for the total consideration amount plus bank charges, if any.

Once RTGS is done, the bank will provide a UTR no. which is a unique number for identifying any RTGS transaction done anywhere in India on any day.

On the date of settlement, the seller will register the demat and bank details of the buyer with BSE and transfer the bonds to ICCL. Once ICCL confirms receipt of payment from the buyer, the bonds will be credited to the buyer's demat a/c by end of day.

If the payment is not done by buyer on the date of settlement, the bonds will be returned back to the seller on the same day. Similarly, if the seller does not transfer the bonds, the payment will be returned back to the buyer on the same day. Therefore, there is no counter party risk. The buyer and seller may approach each other and agree on new terms and conditions to execute the transaction.

No, these bonds are not open to NRIs.

A bond inventory sheet giving details of bonds available for sale along with YTMs and cash flow calculations will be emailed at the beginning of every week to all sales employees of NJ. We will also be sending secondary bond details by WhatsApp to sales employees and select partners at the start of every week.

YTM stands for Yield to Maturity and is defined as the annual return that an investor earns on a bond if it is purchased today, receives all interest payments, holds it until maturity and receives the face value of the bond. An example is provided on the next page.

It is a statement that shows the investor's date-wise inflows and outflows with respect to a bond or debenture. An example is provided below.

Example of a Cash flow calculation along with the bond's YTM.

Cash Flow Working