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NISM-Series-VI: Depository Operations · Special Services - Debt Instruments and Government Securities

Debt Instruments in Depository: Features and Types

Updated 11 October 2026 · Fact-checked

A debt instrument is a security through which an issuer borrows money and promises to repay it, usually with interest. Debentures, bonds, commercial paper and certificates of deposit can all be held in a demat account. For exam questions, identify the issuer, the tenor and how the instrument is held and traded.

Understand Debt Instruments in Depository: Features and Types

A debt instrument is a way for an issuer to borrow. You lend money. The issuer promises to pay interest and return the principal on a set date. You are a lender, not an owner, so you get no ownership or voting rights from holding it.

The main features are the face value (the amount repaid at maturity), the coupon (the interest rate, which may be fixed, floating or zero), the maturity date and the issuer. Some instruments are secured by assets. Others are unsecured and rely on the issuer's credit standing.

The common types are these:
- Debentures: issued by companies. They may be secured or unsecured, and convertible or non-convertible.
- Bonds: debt securities issued by companies, public sector bodies, banks and others. In everyday use the terms debenture and bond overlap, and exam questions rarely turn on a sharp legal difference.
- Commercial paper (CP): a short-term, unsecured money market instrument issued by companies and other eligible entities, usually at a discount to face value.
- Certificate of deposit (CD): a short-term money market instrument issued by banks and certain financial institutions against deposits, usually at a discount.

In the depository system, these instruments are held as electronic balances in a demat account, like shares. The depository records the holding, and the DP gives you statements. A transfer happens by a delivery instruction, not by handing over a paper certificate. Settlement of trades in listed debt takes place through the exchange and clearing mechanism, with securities moving between demat accounts.

CP and CDs are money market instruments and are issued only in dematerialised form, which is why they appear in a depository syllabus. Keep the key contrast in mind: debt gives a fixed claim and no ownership, while equity gives ownership.

Key formulas to remember

Debt versus equity
Debt holder = lender; equity holder = owner
Debt holders get interest and principal and no voting rights as holders.
Discount instruments
Return = Face value − Issue price
CP and CDs are typically issued at a discount and redeemed at face value. The gain is the difference.
Annual interest on a coupon instrument
Coupon amount = Face value × Coupon rate
Example: ₹1,00,000 at 8% gives ₹8,000 a year, if paid annually.
Money market versus capital market debt
CP and CD = short term; debentures and bonds = generally longer term
Use tenor to classify the instrument when the question gives no other clue.

How to solve Debt Instruments in Depository: Features and Types questions

Use this method for any question on features or types of debt instruments in the depository system.

  1. 1Read the question and mark what is asked: a feature, a type, an issuer or a holding method.
  2. 2Decide whether the instrument is short term (money market) or longer term (debentures, bonds).
  3. 3Identify the issuer: company, bank or government. CDs come from banks; CP comes from companies and other eligible issuers.
  4. 4Check whether the instrument pays a coupon or is issued at a discount.
  5. 5Remember the holder is a lender with no ownership rights.
  6. 6Recall that holding is electronic in a demat account and transfer is by delivery instruction.
  7. 7Remove options that use equity features such as voting or ownership.
  8. 8Pick the option that fits every part of the statement, not just one.

Quickest way: Issuer and tenor shortcut

When to use it: Use this when you have under a minute and the options name several instruments.

  1. Bank issuer plus short term points to a certificate of deposit.
  2. Company issuer plus short term, unsecured and at a discount points to commercial paper.
  3. Company issuer plus longer term with a coupon points to a debenture or bond.
  4. Any option giving the debt holder ownership or voting rights is wrong.
  5. Any option saying paper certificates are needed for CP or CDs is wrong.

Common mistakes in Debt Instruments in Depository: Features and Types

  • Treating a debenture holder as a part-owner of the company.

    Debentures and shares both appear in a demat account, so they look alike.

    Fix: A debenture holder is a lender. Ownership belongs to shareholders.

  • Saying CDs are issued by companies.

    CP and CD are learned together and the issuers get mixed.

    Fix: Link CD to banks and CP to companies and other eligible issuers.

  • Assuming all debt instruments pay a periodic coupon.

    Coupon-paying bonds are the standard example.

    Fix: CP and CDs are usually issued at a discount. Zero-coupon bonds also exist.

  • Believing debentures are always secured.

    The word debenture suggests a charge on assets.

    Fix: Debentures can be secured or unsecured. Read the wording of the option.

  • Thinking debt instruments in demat form move by physical delivery.

    Older paper-based practice is remembered.

    Fix: Transfers are by electronic delivery instruction between demat accounts.

Worked examples

Example 1

Which of the following is a short-term, unsecured money market instrument issued by a company, usually at a discount to face value? (a) Debenture (b) Commercial paper (c) Certificate of deposit (d) Equity share

Show the solution
  1. Short-term and money market rules out the equity share, which is not a debt instrument.
  2. Debentures are generally longer term, so (a) does not fit.
  3. A certificate of deposit is issued by banks, not companies, so (c) does not fit.
  4. Commercial paper is short term, unsecured and issued at a discount by companies.

Answer: (b) Commercial paper

Example 2

An investor holds 100 non-convertible debentures of face value ₹1,000 each, with a coupon of 9% a year, in a demat account. What interest does the investor receive in one year, and what rights does the holder have as a debenture holder?

Show the solution
  1. Total face value = 100 × ₹1,000 = ₹1,00,000.
  2. Annual interest = ₹1,00,000 × 9% = ₹9,000.
  3. The holder lends money to the company, so the holder is a creditor.
  4. Holding debentures gives no ownership or voting rights as a shareholder.

Answer: ₹9,000 a year in interest; the holder is a lender with no ownership rights.

Exam tips

  • Link each instrument to its issuer and tenor. Many questions are solved by this alone.
  • Watch for options that give debt holders voting rights. Reject them.
  • Know that CP and CDs are held in dematerialised form, as the question may ask about the form of holding.
  • Read for words like secured, convertible and discount, which separate close options.

Practice questions from Special Services - Debt Instruments and Government Securities

Debt Instruments in Depository: Features and Types in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Debt Instruments in Depository: Features and Types: frequently asked questions

What is the difference between debentures and bonds in demat form?

Both are debt securities that you hold as electronic balances in a demat account. In common usage the terms overlap. Debentures are generally linked to companies, while bonds are issued by a wider set of issuers. For the exam, focus on the issuer and the features stated in the question.

Can commercial paper and certificates of deposit be held in a demat account?

Yes. These money market instruments are issued in dematerialised form, so they are held through a DP in a demat account.

Do debenture holders have voting rights?

No. A debenture holder is a lender to the company, not an owner. Voting rights as a holder belong to shareholders.

How are debt instruments transferred in demat form?

They move between demat accounts through delivery instructions given to the DP. No paper certificate changes hands.