NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities

Types of Bonds and Debt Instruments in India for NISM X-A

Updated 11 October 2026 · Fact-checked

Debt instruments in India are grouped by issuer and tenor. Government securities, T-bills and SDLs are issued by governments. Corporate bonds, CP and CDs come from companies and banks. Money market instruments mature within one year. Coupon design varies: fixed, floating, zero coupon or inflation-indexed. Match each feature to the instrument.

Understand Types of Bonds and Debt Instruments in India

A debt instrument is a promise to repay money borrowed, usually with interest. The borrower is the issuer. You, the lender, are the investor. The first split is by issuer: governments, banks and companies.

Government securities (G-secs) include Central Government dated securities and T-bills, issued through the RBI. State governments raise loans called SDLs, which are often grouped with government securities (see below). G-secs carry sovereign backing, so credit risk is treated as negligible. They are dated securities with tenors usually above one year. Most dated G-secs pay a fixed coupon, normally every six months, but floating rate, zero coupon and inflation-indexed types also exist. Treasury bills (T-bills) are short-term government instruments of 91, 182 and 364 days. They pay no coupon. They are issued at a discount and redeemed at face value, and your return is the difference. State Development Loans (SDLs) are bonds issued by state governments. They are also dated, usually pay a fixed half-yearly coupon, and typically yield a little more than G-secs of the same tenor.

Corporate bonds and debentures are issued by companies, PSUs and financial institutions. Their yield depends on the issuer's credit rating. Higher credit risk means a higher yield. Money market instruments have an original maturity of up to one year. Commercial paper (CP) is an unsecured short-term note issued by companies. Certificates of deposit (CD) are issued by banks and financial institutions against funds deposited. CP is issued at a discount. CDs are usually issued at a discount, though they may carry interest. Call money is overnight interbank borrowing, and notice money is interbank borrowing for 2 to 14 days. Repo is a sale of securities with an agreement to buy them back.

Coupon design gives more types. A zero coupon bond pays no periodic interest. It is issued at a deep discount and redeemed at face value. A floating rate bond (FRB) has a coupon reset against a benchmark, so it has less interest rate risk. An inflation-indexed bond links principal or interest to an inflation measure, protecting real returns. Other instruments include convertible debentures, secured and unsecured bonds, tax-free bonds and perpetual bonds. Exam questions test which instrument fits which feature.

Key formulas to remember

Yield on price (annualised) for discount instruments: Yield = (Face value − Price) ÷ Price × (365 ÷ Days to maturity); Used for the yield on price of T-bills, CP and CDs. Price is below face value. Return comes only from the discount. A discount rate is computed on face value instead: (Face value − Price) ÷ Face value × (365 ÷ Days).
Zero coupon bond price: Price = Face value ÷ (1 + r)^n; r is the annual yield and n is years. There is no coupon in between.
T-bill tenors: 91 days, 182 days, 364 days; Issued at a discount, no coupon, redeemed at face value.
Money market limit: Original maturity ≤ 1 year; Longer than one year is a capital market (bond) instrument.

How to solve Types of Bonds and Debt Instruments in India questions

Use this sequence for any question that asks you to identify or compare debt instruments.

1Identify the issuer: Central Government, state government, company, bank or other.
2Check the tenor. Up to one year points to money market. Above one year points to dated bonds.
3Check how interest is paid: fixed coupon, floating coupon, no coupon (discount) or inflation-linked.
4Judge credit risk. Government is lowest. Corporate depends on rating. Unsecured is riskier than secured.
5Identify the key risk the question hints at: interest rate, credit, inflation or reinvestment.
6Match the clue words to the instrument and eliminate options that break one stated feature.
7If a calculation is needed, use the discount or zero coupon formula and check that the price is below face value.

Quickest way: Issuer, tenor, coupon

When to use it: Use this for one-line MCQs that describe an instrument and ask you to name it.

Underline the issuer word: Government, state, bank, company.
Underline the tenor: days, months or years.
Underline the interest feature: discount, reset, indexed, fixed.
Pick the instrument that fits all three. Discard any option that fails one.

Common mistakes in Types of Bonds and Debt Instruments in India

Saying T-bills pay a coupon.
Students link all government paper with interest payments.
Fix: T-bills are discount instruments. You buy below face value and get face value at maturity.
Treating SDLs as having the same credit backing as G-secs in every sense.
Both are government paper.
Fix: SDLs are issued by state governments, not the Centre, and are not backed by the Central Government. They usually yield slightly more than G-secs of the same tenor.
Believing a floating rate bond has no risk.
Students hear that its coupon resets.
Fix: FRBs have lower interest rate risk, but credit risk remains. Reset design also matters.
Confusing CP with CD.
Both are short-term money market instruments.
Fix: CP is issued by companies and is unsecured. CD is issued by banks and financial institutions.
Assuming zero coupon bonds carry no interest rate risk because there is no coupon.
No coupon feels like no interest.
Fix: The price still moves with yields. Zero coupon bonds are quite sensitive because all cash comes at maturity.

Worked examples

Example 1

A 91-day T-bill with face value ₹1,00,000 is bought at ₹98,500. Find the annualised yield on price, using a 365-day year, to two decimals.

Show the solution

Discount earned = 1,00,000 − 98,500 = ₹1,500.
Return for 91 days = 1,500 ÷ 98,500 = 0.015228, or 1.5228%.
Annualise by multiplying by 365 ÷ 91 = 4.01099.
Annual yield = 0.015228 × 4.01099 = 0.061079, or about 6.11%.
This is the yield on price. The discount rate uses face value as the base: 1,500 ÷ 1,00,000 = 0.015, and 0.015 × 4.01099 = 0.060165, or about 6.02%.

Answer: Yield on price is about 6.11% a year. The discount rate, computed on face value, would be about 6.02%.

Example 2

An investor wants a debt instrument whose coupon resets periodically against a benchmark rate, to reduce interest rate risk. Which is most suitable: (a) zero coupon bond, (b) floating rate bond, (c) 91-day T-bill, (d) fixed coupon 10-year G-sec?

Show the solution

The key clue is a coupon that resets against a benchmark.
A zero coupon bond has no coupon, so (a) fails.
A T-bill has no coupon either, so (c) fails.
A fixed coupon G-sec does not reset, so (d) fails.
Only a floating rate bond resets its coupon.

Answer: (b) Floating rate bond.

Exam tips

Remember tenors: T-bills are 91, 182 and 364 days. Nothing above one year is a money market instrument.
Link each issuer to its instrument: Government to G-sec and T-bill, state to SDL, bank to CD, company to CP.
For yield questions, check the sign. A discount instrument price must be below face value.
Watch the words 'least' and 'most' in risk questions. In X-A, a wrong answer loses 25% of the question's marks. That is 0.5 mark on a 2-mark question (in the 2-mark caselets), against 0.25 mark on a 1-mark question.
Inflation-indexed means real return protection. Floating rate means reset coupon. Do not swap them.

Practice questions from Investing in Fixed Income Securities

Types of Bonds and Debt Instruments in India in other exams

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

Types of Bonds and Debt Instruments in India: frequently asked questions

What is the difference between a G-sec and a T-bill?

A G-sec is a dated government security, usually above one year, and pays a fixed coupon. A T-bill is under one year with tenors of 91, 182 or 364 days. It has no coupon and is issued at a discount.

What is the difference between commercial paper and a certificate of deposit?

Commercial paper is an unsecured short-term note issued by companies. A certificate of deposit is issued by banks and financial institutions. Both are money market instruments. CP is issued at a discount. CDs are usually issued at a discount, though they may carry interest.

How do floating rate bonds differ from zero coupon bonds?

A floating rate bond pays a coupon that resets against a benchmark. A zero coupon bond pays no coupon and is issued at a discount. The FRB has less interest rate risk.

Are SDLs safer than corporate bonds?

SDLs are issued by state governments and are not backed by the Central Government. Their credit risk is generally seen as lower than most corporate bonds. They usually yield slightly more than G-secs of similar tenor.