What are the Primary Market and Secondary Market?
Primary Market: This is where new bonds are issued and sold for the first time by the issuer, be it a government or a corporation. Investors purchase these bonds directly from the issuer. In the primary market, the issuer receives the proceeds from the sale of the bonds. It's where the initial issuance and distribution of securities occur.
Secondary Market: This market deals with already-issued bonds being bought and sold among investors. Here, bonds that were initially issued in the primary market are traded on various exchanges or over-the-counter platforms. In the secondary market, the transactions occur between investors, and the issuing entity does not receive any additional funds from these trades. Prices in the secondary market can fluctuate based on market demand, interest rates, and the perceived risk associated with the bonds.
Related Articles
What are the possible risks associated with Bonds?
While bonds offer a generally low-risk compared to equity investments, there are still potential risks to consider, a few of those include: Interest rate risk: This is the biggest risk for all bonds. If interest rates rise after you've purchased a ...
Are there any charges/penalty for redemption of bonds before maturity?
No, redeeming bonds before maturity does not incur charges or penalties. However, it's crucial to consider market conditions as the price you receive upon redemption depends on prevailing market rates. The value you get may vary based on factors such ...
What is the Discounted Price and the Premium Price?
When a bond is traded in the market, its price can diverge from its par value (the value at which it was originally issued by the issuer). Discounted Price: If the bond's market price falls below its par value, it is said to be trading at a ...
Does INR bonds have high liquidity similar to other asset class (like stocks, MFs, FDs, etc.)
Bonds typically have lower liquidity compared to assets like stocks and mutual funds. While bonds are more liquid than fixed deposits (FDs), they may not be as easily tradable as stocks or mutual funds due to the bond market's structure. However, the ...
What is the difference between Coupon rate and Yield?
The Coupon Rate represents the fixed annual interest rate a bond pays based on its face value. In contrast, Yield refers to the total return an investor can expect from a bond, considering its price, coupon payments, and maturity. Yield accounts for ...