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NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)

Fixed Income Securities: Features and Types for NISM XXI-A

Updated 11 October 2026 · Fact-checked

A fixed income security is a debt instrument where the issuer promises to pay interest and return the principal on a set date. Key features are face value, coupon and maturity. Types include G-Secs, T-Bills, state development loans, corporate bonds and bank instruments. In the exam, match each feature or issuer to its definition.

Understand Fixed Income Securities: Features and Types

A fixed income security is a loan you give to an issuer. The issuer can be the government, a company or a bank. In return, the issuer promises to pay you interest at set times and repay your money at the end.

Three features matter most. Face value (also called par value or principal) is the amount the issuer repays at maturity and the base on which interest is calculated. Coupon is the interest rate, stated as a percentage of face value. Maturity is the date on which the principal is repaid. The time left until that date is the residual maturity.

The interest is called fixed income because the coupon is usually known in advance. But not every instrument is the same. A zero-coupon bond pays no periodic interest. It is issued at a discount and redeemed at face value. A floating rate bond has a coupon linked to a reference rate, so it resets. Bonds can also be callable (the issuer may repay early) or puttable (the holder may demand early repayment).

Types are best grouped by issuer. The Central Government issues Government Securities (G-Secs) and Treasury Bills. Treasury Bills are short-term and issued at a discount. G-Secs are longer-term and normally pay a coupon. State governments issue State Development Loans (SDLs). Companies issue corporate bonds and debentures, including commercial paper for short-term funding. Banks issue certificates of deposit and bonds, and they also take fixed deposits.

The main difference between G-Secs and corporate bonds is credit risk. G-Secs carry the sovereign's backing and are considered to have no default risk in rupee terms. Corporate bonds carry the issuer's credit risk, so they usually offer a higher yield and are rated by credit rating agencies. Keep the issuer, tenor and risk linked in your mind.

Key formulas to remember

Annual coupon amount
Coupon amount = Coupon rate × Face value
Coupon is always applied to face value, not to market price. Check how often it is paid (annual or half-yearly).
Current yield
Current yield = Annual coupon ÷ Market price × 100
Uses market price. It differs from the coupon rate whenever price differs from face value.
Price versus face value
Premium: price > face value. Par: price = face value. Discount: price < face value.
If market yield is above the coupon rate, the bond usually trades at a discount. If below, at a premium.
Zero-coupon bond
Return comes only from (Face value − Issue price)
No periodic interest is paid. Treasury Bills work this way.

How to solve Fixed Income Securities: Features and Types questions

Use this method for any question on features or types of fixed income securities.

  1. 1Identify the issuer in the question: Central Government, state, company or bank.
  2. 2Note the tenor. Short-term (up to one year) points to money market instruments such as T-Bills, CPs and CDs. Longer tenor points to G-Secs, SDLs or bonds.
  3. 3Check how interest is paid: fixed coupon, floating coupon, or discount with no coupon.
  4. 4Look for special features: callable, puttable, secured, unsecured, convertible.
  5. 5For numerical parts, apply the coupon to face value and use market price only for yield or premium and discount questions.
  6. 6Match the risk: sovereign for G-Secs, credit risk for corporates and banks.
  7. 7Eliminate options that mix up features, such as a coupon described as a share of market price.

Quickest way: Issuer, tenor, coupon in ten seconds

When to use it: Use this for definition and classification questions when time is short.

  1. Name the issuer first. That settles credit risk.
  2. Name the tenor next. That separates money market from bond market.
  3. Check the coupon type. No coupon means discount instrument.
  4. Pick the option that fits all three. Reject any that fits only one.

Common mistakes in Fixed Income Securities: Features and Types

  • Applying the coupon rate to market price instead of face value.

    Students confuse coupon with yield.

    Fix: Coupon amount = coupon rate × face value. Market price is only used for current yield.

  • Saying Treasury Bills pay a coupon.

    All government paper seems alike.

    Fix: T-Bills are issued at a discount and redeemed at face value. They pay no coupon.

  • Calling G-Secs risk-free in every sense.

    Sovereign backing is remembered, but price risk is forgotten.

    Fix: G-Secs have no default risk in rupee terms but their prices still move with interest rates.

  • Treating coupon rate and yield as the same thing.

    Both are shown as percentages.

    Fix: Coupon is fixed on face value. Yield depends on the price you pay.

  • Mixing up maturity with issue date or tenor.

    The terms sound close.

    Fix: Maturity is the repayment date. Tenor or residual maturity is the time remaining.

Worked examples

Example 1

A bond has a face value of ₹1,000 and a coupon rate of 8% paid annually. It trades at ₹1,250 in the market. What is the annual coupon amount and the current yield?

Show the solution
  1. Annual coupon = 8% × ₹1,000 = ₹80.
  2. Current yield = ₹80 ÷ ₹1,250 × 100.
  3. ₹80 ÷ ₹1,250 = 0.064, so current yield = 6.4%.

Answer: The annual coupon is ₹80 and the current yield is 6.4%.

Example 2

Which instrument is issued by the Central Government at a discount, has a tenor of up to one year, and pays no coupon? Options: (A) State Development Loan (B) Treasury Bill (C) Corporate debenture (D) Certificate of Deposit

Show the solution
  1. Central Government as issuer rules out the corporate debenture and the Certificate of Deposit, which is issued by banks.
  2. State Development Loans are issued by state governments, so (A) is out.
  3. Treasury Bills are short-term, discount-issued Central Government instruments with no coupon.

Answer: (B) Treasury Bill

Exam tips

  • Expect direct questions matching an instrument to its issuer. Learn the issuer list cold.
  • Read numerical options carefully. Wrong options often use market price in place of face value.
  • Remember that discount instruments carry no coupon. This is a frequent trap.
  • For G-Sec versus corporate bond questions, answer with credit risk and yield first.
  • Wrong answers cost marks in this exam, so skip a question only if you cannot eliminate any option.

Practice questions from Investing in Fixed Income Securities (NISM XXI-A)

Fixed Income Securities: 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.

Fixed Income Securities: Features and Types: frequently asked questions

What is the difference between G-Secs and corporate bonds?

G-Secs are issued by the Central Government and have no default risk in rupee terms. Corporate bonds are issued by companies and carry credit risk. Because of that risk, corporate bonds generally offer higher yields and are rated.

What are face value, coupon and maturity?

Face value is the amount repaid at maturity and the base for interest. Coupon is the interest rate on face value. Maturity is the date the principal is repaid.

Do all fixed income securities pay a fixed coupon?

No. Zero-coupon bonds and Treasury Bills pay no periodic interest. Floating rate bonds have a coupon that resets with a reference rate.

Are Treasury Bills the same as G-Secs?

Both are issued by the Central Government. Treasury Bills are short-term and sold at a discount. Dated G-Secs are longer-term and usually pay a coupon.