Is there a Legal Cap on Bond Rates?

Picture portrays bond and wonders about rate cap 

Actual Question:

What is the maximum interest rate and minimum interest rate for issue of debentures?

Answer:

Dear Friend!

There are no laws or regulations that fix the minimum and maximum interest rates for debentures or bonds; it is the market that determines them.

The debenture is a debt contract and the interest rate is one of the contract terms. In a contract it is the mutual consent and acceptance that matters.

In reality the interest rates of debentures are governed based on following factors:

• Is it a government debt?
• If private debt is there a sovereign guarantee?
• Is it a secured or unsecured?
• What is the tenure or repayment period - short or medium or long?
• Credit Rating assigned by independent rating agency
• What are the prevailing market interest rates for similar instruments?
• What is brand value of the issuer - example TATA Steel
• There are many other factors that go into finalising the interest rate of the debenture. Finally whether the rate will be attractive to the investors and affordable to the investor are the key.

Thank you,

With Best Regards

Anand

Related:

• What Is Basis Points?
• What is Negative Interest Rate?
• What are Repo and Reverse Repo Rates?
• How Repo Rate Affects Debt Funds?

Distinction Between Trading and Investing

Actual Question:

What’s the difference between stock trading, investing and real estate?

Answer:

The dictionary meaning of the word ‘Investing’ is putting money into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit. Further drilling down reveals a few other aspects like period of holding, safety of principal, regularity, and so on.

Picture depicts investor walking to the stock broker to purchase shares

‘Stock Trading’ is buying shares or sticks with an intention of profiting from the price fluctuations on the stock market. Stock trading is a speculative activity and does not fit into the definition of investing.

Picture shows a trader sitting before the computer trading in stocks

Real estate investment qualifies as investment though it has some fundamental drawbacks.

Following table brings out the differences among the three:

	Sl. No.	Aspect	Share Trading	Investing (Shares)	Real Estate
	1	Recurring income from the same investment	✖	✔	✔
	2	Capital Appreciation	✔	✔	✔
	3	Liquidity	✔	✔	✖
	4	Can invest small sums?	✔	✔	✖
	5	Intended Period of holding	Short	Long	Long
	6	Safety of Principal	✖	✔	✔

Related:

• Investing
• Trading/ Day Trading
• Margin Trading