Level 5 · Module 1 · Capital Markets
Equity & Debt Markets
Two ways every economy raises money: sell a piece, or borrow it.
In this lesson
What you'll be able to do
- Contrast equity and debt markets
- Understand bond price vs yield
- Place G-Secs, corporate bonds and money market
Think about it
Interest rates go up. Why does the price of a bond you already own go down?
Story
Let's picture it
You hold a bond paying 6%. New bonds now pay 8%. Nobody will buy your 6% bond at full price when a better one exists, so its market price falls until its effective yield matches the new 8%. Price and yield move in opposite directions. That single sentence explains most of the bond market.
Visual
The market map
Capital market
Long-term funds: equity + long-dated debt
Money market
Short-term (under 1 year): T-bills, commercial paper, CDs
Equity market
Ownership; returns uncertain, upside uncapped
Debt market
Lending; fixed schedule, capped upside, credit risk
Plain English
The simple explanation
Government securities (G-Secs) carry the lowest credit risk in rupee terms and set the benchmark for other rates.
Corporate bonds pay more because they carry credit risk. Rating agencies grade them, but ratings can and do change.
Bond investors face two main risks: credit risk (won't be repaid) and interest-rate risk (rates move, so prices move). Longer-duration bonds swing more with rates.
Real world
RBI Retail Direct
Indian retail investors can now buy G-Secs and T-bills directly through RBI Retail Direct, access that existed only for institutions a decade ago.
Watch out
Common mistakes
- Assuming all debt is safe
- Ignoring duration when rates are moving
- Chasing the highest yield without reading the credit rating
Did you know?
The 10-year G-Sec yield is India's most-watched interest rate, it influences home loans, corporate borrowing and equity valuations alike.
Your turn
Mini challenge
Look up today's 10-year G-Sec yield and compare it with a large bank's one-year FD rate. Explain the gap in one line.
Quick quiz
1 / 3
Wrap up
Summary
Equity sells ownership; debt sells a promise. In debt, price and yield always move opposite ways.
- G-Secs set the benchmark rate
- Bond price ↑ = yield ↓
- Debt carries credit and interest-rate risk
Revise