NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets

Debt Market Basics and Instruments for NISM Research Analyst

Updated 11 October 2026 · Fact-checked

The debt market is where borrowers raise money by issuing instruments that promise interest and repayment. The money market deals in instruments up to one year, such as T-bills, CPs and CDs. The bond market deals in longer instruments, such as G-secs, bonds and debentures. To solve questions, identify the issuer and the maturity.

Understand Debt Market Basics and Instruments

A debt instrument is a loan in tradable form. You, as an investor, lend money. The issuer promises to pay interest (the coupon) and return the principal on a set date (the maturity). Unlike an equity holder, you are a creditor and not an owner.

The debt market splits by maturity. The money market deals in short-term debt with original maturity of up to one year. The bond market (capital market debt) deals in instruments with maturity longer than one year. The question usually gives a clue: the issuer, the tenor or the word discount.

Government securities (G-secs) are issued by the Central Government and state governments (state ones are called State Development Loans, SDLs). Dated G-secs carry maturities of more than one year and usually pay a fixed coupon. They are treated as having no default risk because the sovereign issues them. Treasury bills (T-bills) are issued by the Central Government and have maturities of 91, 182 and 364 days. They carry no coupon. They are issued at a discount and redeemed at face value, and your return is the difference.

Commercial paper (CP) is an unsecured, short-term promissory note issued by companies and other eligible entities to raise working capital. It is issued at a discount. A certificate of deposit (CD) is a negotiable deposit certificate issued by banks and eligible financial institutions, also at a discount. Both are money market instruments. CP is a company's credit and CD is a bank's.

Bonds and debentures are longer-term corporate debt. In everyday usage, a bond is often a debt instrument issued by government bodies, public sector entities and corporates. A debenture is a debt instrument issued by a company, and can be secured (backed by assets) or unsecured. For exam purposes, treat them as similar long-term debt, and look at whether a question stresses security or the type of issuer. Debt in India is mostly traded over the counter, and G-secs are the largest segment.

Key formulas to remember

Discount instrument return: Return = Face value − Issue price; Applies to T-bills, CPs and CDs. There is no coupon. You earn the gain on redemption.
Money market cut-off: Money market: original maturity ≤ 1 year; Bond market: maturity > 1 year; Use this as the first sorting test for any instrument.
T-bill tenors: 91 days, 182 days, 364 days; Issued by the Central Government at a discount. No coupon.
Coupon amount: Annual coupon = Coupon rate × Face value; For a 7% bond of face value ₹1,000, the annual coupon is ₹70.

How to solve Debt Market Basics and Instruments questions

Use this sequence for any question on debt instruments or the debt market.

1Read the question and mark the key words: issuer, tenor, coupon or discount, secured or unsecured.
2Identify the issuer. Government points to G-secs or T-bills. A bank points to a CD. A company points to CP, bonds or debentures.
3Check the maturity. Up to one year means money market. More than one year means bond market.
4Check how the return is paid. A discount issue means T-bill, CP or CD. Periodic interest means a dated G-sec, bond or debenture.
5Check the risk clue. Sovereign issuer means no default risk. Unsecured CP depends on the issuer's credit.
6Eliminate options that mismatch the issuer or tenor.
7For numbers, apply the discount or coupon formula carefully and check the units.

Quickest way: Issuer plus tenor sort

When to use it: Use for any definition or classification MCQ when time is short.

Ask who issues it: government, bank or company.
Ask how long: up to one year or more.
Match: government short = T-bill; government long = G-sec; bank short = CD; company short = CP; company long = bond or debenture.
Pick the option that fits both clues and drop the rest.

Common mistakes in Debt Market Basics and Instruments

Saying T-bills pay a coupon.
Students link all government debt with interest payments.
Fix: T-bills are zero coupon. They are issued at a discount and repaid at face value.
Treating CP and CD as the same instrument.
Both are short-term and issued at a discount.
Fix: CP is issued by companies and is unsecured. CD is issued by banks and financial institutions against deposits.
Placing a 1-year-plus instrument in the money market.
The cut-off is read loosely.
Fix: Money market means original maturity of up to one year. Longer goes to the bond market.
Calling G-secs risky because they are long-term.
Mixing default risk with price risk from interest rate changes.
Fix: G-secs have no default risk from the sovereign. Their prices can still move when interest rates change.
Assuming debentures are always secured.
Students link the word with a charge on assets.
Fix: Debentures can be secured or unsecured. Read the option wording.
Confusing T-bills with dated G-secs.
Both come from the Central Government.
Fix: T-bills are short term and discounted. Dated G-secs are longer term with periodic coupons.

Worked examples

Example 1

A 91-day instrument issued by the Central Government is sold at ₹98.50 per ₹100 face value. Identify the instrument and the market, and state the return per ₹100 face value.

Show the solution

The issuer is the Central Government and the tenor is 91 days.
This fits a Treasury bill.
The maturity is under one year, so it belongs to the money market.
It is issued at a discount and repaid at face value.
Return = 100 − 98.50 = ₹1.50 per ₹100 face value.

Answer: It is a T-bill in the money market, with a gain of ₹1.50 per ₹100 face value.

Example 2

A company holds a ₹1,000 face value bond with a 8% coupon, paid annually. What is the annual coupon, and is the instrument a money market or bond market instrument if it matures in 5 years?

Show the solution

Annual coupon = 8% × ₹1,000 = ₹80.
Maturity is 5 years, which is more than one year.
So it trades in the bond market, not the money market.

Answer: The annual coupon is ₹80, and it is a bond market instrument.

Exam tips

Memorise the issuer for each instrument: government for G-secs and T-bills, bank for CDs, company for CP, bonds and debentures.
Remember T-bill tenors of 91, 182 and 364 days; a different number is a trap option.
Watch for words like discount and zero coupon, which signal T-bills, CPs or CDs.
Do not mix default risk with interest rate risk when an option mentions G-secs.
With negative marking of 25% of the question's marks, skip a question only if you cannot remove at least two options.

Practice questions from Terminology in Equity and Debt Markets

Debt Market Basics and Instruments in other exams

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

Debt Market Basics and Instruments: frequently asked questions

What are the main types of debt instruments in India?

The main ones are G-secs, State Development Loans, T-bills, commercial paper, certificates of deposit, corporate bonds and debentures. Short-term ones form the money market. Longer-term ones form the bond market.

What is the difference between the money market and the bond market?

The money market deals in debt with original maturity of up to one year, like T-bills, CPs and CDs. The bond market deals in debt maturing in more than one year, like G-secs, bonds and debentures.

What are G-secs and T-bills?

G-secs are debt securities issued by the Central or state governments, usually with a maturity above one year and a coupon. T-bills are short-term Central Government securities issued at a discount for 91, 182 or 364 days.

What is the difference between bonds and debentures?

Both are long-term debt. Debentures are issued by companies and may be secured or unsecured. Bond is a broader term that is also used for government and public sector debt.