Context:
In a significant step towards deepening the bond market, the Reserve Bank of India (RBI) has permitted the separate trading of principal and interest components of State Government Loans (SGLs). This move aligns with similar facilities already available for select Government of India (GoI) securities.
Objective
- To develop active primary and secondary markets in State Government securities
- To enhance liquidity, price discovery, and market participation in SGLs
Scope of the Facility
- Applies to fixed-coupon bonds issued by:
- State Governments
- Union Territories
- Instruments must have:
- Residual maturity of up to 14 years
- Minimum outstanding amount of â‚ą1,000 crore
What are Fixed-Coupon Bonds?
Fixed-coupon bonds are a type of bond where the interest rate, or coupon, remains constant throughout the bond’s life. This means investors know exactly what interest payments they will receive at regular intervals. Unlike floating-rate bonds where the interest rate can change, fixed-coupon bonds offer a predictable income stream.
