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Institutional participants such as banks, primary dealers, mutual funds, insurance companies, retirement funds, corporates etc. are the major players in this market.
Corporate bonds are priced at a spread over the corresponding government security depending on the level of perceived risk. This is because these bonds are not sovereign and are serviced by the entity issuing them and a carry a risk of default on the part of the entity in fulfilling its interest or principal payment obligations.
Corporate Bonds usually carry a rating (normally AAA to D) as specified by the rating agencies, depending on a variety of fundamental factors pertaining to the company issuing the bonds. These ratings indicate the level of risk of default on the issuer, with AAA indicating highest safety and D indicating a very high probability of default on the part of the issuer. However, bonds upto the rating of BBB are categorised as investment grade. Rating on bonds is reviewed by rating agencies on a periodic basis.
Different types of bonds are fixed interest securities, fixed interest security with put/call option, fixed interest security where the maturity amount is received in instalments, floating rate bonds, zero-coupon bonds, STRPPS -bonds with same coupon but varying maturities, hybrid bonds etc.Frequency of interest payments could be annual/semi-annual/quarterly/monthly or zero coupon bonds etc depending on each issuer.
All bonds are issued and held in demat since June 2002 as per RBI regulations. There are central depositories for all bonds- usually NSDL or CDSL, where bonds are held in electronic form.
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