NISM-Series-XXII: Fixed Income Securities Certification Examination

Syllabus for Fixed Income Securities Certification Examination

Unit 1: Overview of the Indian Debt Market

• 1.1. Describe broadly the Debt market and its need in financing structure of Corporates and Government
• 1.2. Understand the importance of Debt Markets
• 1.3. Know the Bond market ecosystem
• 1.4. Discuss briefly the role of the Regulators and relevant Regulations
• 1.5. Understand the role of Credit Rating Agencies
• 1.6. Discuss the role of monetary policy in Debt markets
• 1.7. Evolution of debt markets globally and in India
• 1.8. Know the market dynamics of debt markets in India

Unit 2: Types of Fixed Income Securities

• 2.1. Discuss the classification based on the type of Issuer
• 2.1.1. Government
• 2.1.2. Municipal issuers
• 2.1.3. Corporate
• 2.1.4. Securitized Debt
• 2.2 Understand the classification based on Maturity
• 2.2.1. Overnight Debt
• 2.2.2. Ultra Short Term Debt (Money Market)
• 2.2.3. Short Term Debt
• 2.2.4. Medium Term Debt
• 2.2.5. Long Term Debt
• 2.3 Understand the classification based on Coupon
• 2.3.1. Plain Vanilla Bonds
• 2.3.2. Zero-Coupon Bonds
• 2.3.3. Floating Rate Bonds
• 2.3.4. Caps and Floor
• 2.3.5. Inverse Floater
• 2.3.6. Inflation Indexed Bonds
• 2.3.7. Step Up/Down Bonds
• 2.3.8. Deferred Coupon Bonds
• 2.3.9. Deep Discount Bonds
• 2.4. Discuss the classification based on Currencies
• 2.4.1. Foreign Currency Denominated Bonds
• 2.4.2. Masala Bonds
• 2.5. Briefly discuss the classification based on Embedded Options
• 2.5.1. Straight Bonds
• 2.5.2. Bonds with a Call Option
• 2.5.3. Bonds with a Put Option
• 2.5.4. Convertible Bonds (including FCCB)
• 2.5.5. Warrants
• 2.6. Briefly discuss the classification based on security
• 2.6.1. Secured Debt
• 2.6.2. Unsecured Debt
• 2.6.3. Subordinated Debt
• 2.6.4. Credit Enhanced Bonds
• 2.7. Other fixed income securities
• 2.7.1. Sovereign Gold Bonds
• 2.7.2. Perpetual Bonds
• 2.7.3. AT1 Bonds
• 2.7.4. Tier-2 Bonds
• 2.7.5. Savings Bonds
• 2.7.6. High Yield Bonds
• 2.7.7. Green bonds,
• 2.7.8. REITs and InvITs
• 2.7.9. Tax-free Bonds
• 2.7.10. Asset Linked Bonds
• 2.7.11. Equity Linked Notes
• 2.7.12. Participatory Bonds
• 2.7.13. Income Bonds
• 2.7.14. Payment in Kind Bonds
• 2.7.15. Extendable Bonds
• 2.7.16. Extendable Reset Bonds

Unit 3: Risks Associated with Investing in Fixed Income Securities

• 3.1. Briefly describe various kinds of risks associated with fixed income securities
• 3.1.1. Interest Rate Risk
• 3.1.2. Call risk
• 3.1.3. Reinvestment Risk
• 3.1.4. Credit Risk
• 3.1.4.1. Downgrade Risk
• 3.1.4.2. Spread Risk or Basis Risk
• 3.1.4.3. Default Risk
• 3.1.5. Liquidity Risk
• 3.1.6. Exchange Rate Risk
• 3.1.7. Inflation Risk
• 3.1.8. Volatility Risk
• 3.1.9. Political or Legal Risk
• 3.1.10. Event Risk
• 3.2. Discuss the Risk mitigation tools
• 3.2.1. Use of Credit Derivatives to manage Risk of Default
• 3.2.2 Use of Interest rate derivatives like Interest rate swaps and Interest rate futures, etc. to manage interest rate risk
• 3.2.3. Use of Currency derivatives

Unit 4: Pricing of Bonds

• 4.1. Discuss the concept of “Par Value”
• 4.2. Describe the concept of Time Value of Money
• 4.3. Understand the process of determining Cash Flow, Yield and Price of bonds
• 4.4. Understand the Pricing of different bonds including:
• 4.4.1. Valuing bonds with maturities less than one year
• 4.4.2. Valuing bonds at non-coupon dates
• 4.4.3. Valuing perpetual bonds
• 4.4.4. Pricing of treasury bills
• 4.4.5. Understand discount factors and bootstrapping
• 4.5. Discuss Price-Yield relationship
• 4.6. Describe the Price Time Path of a bond
• 4.7. Understand the pricing of a Floating Rate Bond

Unit 5: Yield Measures and Total Return

• 5.1. Understand the Sources of Return
• 5.1.1. Coupon Income
• 5.1.2. Capital appreciation
• 5.1.3. Reinvestment income
• 5.2. Describe the Traditional Yield Measures
• 5.2.1. Current Yield
• 5.2.2. Yield to Maturity
• 5.2.3. Effective Yield
• 5.2.4. Yield to Call
• 5.2.5. Yield to Put
• 5.2.6. Yield to Worst
• 5.2.7. Yield for Portfolio
• 5.2.8. Yield for Money Market
• 5.2.9. Yield for floating rate bonds

Unit 6: Term Structure of Interest Rates

• 6.1. Understand the concepts of
• 6.1.1. Yield curve and yield curve theories:
• 6.1.1.1. Pure expectation theory
• 6.1.1.2. Liquidity preference theory
• 6.1.1.3. Market segmentation theory
• 6.1.1.4. Preferred habitat theory
• 6.1.2. Spot curve or Zero coupon yield curve
• 6.1.2.1. Estimation of Zero coupon yield curve using various models
• 6.1.2.2. Cubic spline
• 6.1.2.3. NS and NSS model
• 6.1.3. Spreads
• 6.1.4. Forward Rates
• 6.2. Briefly describe the relationship between Spot and Forward Rates
• 6.3. Understand the determinants of the Shape of the Term Structure

Unit 7: Measuring Interest Rate Risk

• 7.1. Identify the Price Volatility characteristics of Option Free Bonds and Bonds with Embedded Options
• 7.2. Understand the concept of Duration
• 7.2.1. Macaulay Duration
• 7.2.2. Portfolio Duration
• 7.2.3. Modified Duration and Interest rate Sensitivity approximation
• 7.3. Identify difference between Modified Duration and Effective Duration
• 7.4. Understand the Price Value of Basis Point (PV01)
• 7.5. Briefly describe Convexity measures
• 7.6. Identify Modified Convexity and Effective Convexity
• 7.7. Understand the Taylor’s Expansion and its application in approximating Bond Price changes

Unit 8: Indian Money Market

• 8.1. Introduction to Money market
• 8.2. List the types of instruments in Money market
• 8.2.1. Borrowing and lending activities
• 8.2.2. Asset segment (call money, notice money, term money, market repo, triparty repo, T-bills, cash management bills, commercial paper, certificate of deposit and corporate bond repo).
• 8.3. Know the trends in Indian Money Market
• 8.4. Understand the importance of Call money market
• 8.5. Know the important rates in the Indian inter-bank call market
• 8.5.1. MIBOR
• 8.5.2. Weighted Average Overnight Call Money Rate (WACR)
• 8.5.3. Understand the economic utility of Repo market and discuss an example of a Repo transaction

Unit 9: Government Debt Market

• 9.1. Introduction to Government Debt Market
• 9.2. List the types of instruments in Government debt market
• 9.2.1. Treasury bills
• 9.2.2. Cash management bills
• 9.2.3. Dated G-Secs (Fixed rate bonds, Floating rate bonds, Zero coupon bonds, Capital indexed bonds, Inflation indexed bonds, Embedded option bonds, Special securities, STRIPS, SGB, Savings bonds and State development loans)
• 9.3. Know the trends in Indian G-Sec market
• 9.4 Briefly describe the Issuance Mechanism for Government Debt Market
• 9.4.1. Discuss the Primary Market and Government Borrowing Programme
• 9.4.2. Discuss the mechanism of Auctions
• 9.4.3. Underwriting provisions
• 9.4.4. Institutional Participants
• 9.4.5. Foreign Investors
• 9.4.6. Retail Investors
• 9.5. Briefly describe the secondary market infrastructure for G-Secs in India
• 9.5.1. NDS-OM trading platform
• 9.5.1.1. Trading
• 9.5.1.2. Reporting
• 9.6. Briefly describe the Clearing and Settlement system for secondary market trades of G-Secs in India
• 9.6.1. Know the Qualified Central Counterparty for clearing and settlement
• 9.6.2. Describe the Default Handling Mechanism
• 9.7. Understand G-Sec valuation
• 9.8. Know the key regulatory guidelines for Government Debt Market

Unit 10: Corporate Debt Market

• 10.1. Introduction to Corporate Debt Market in India and know the key players in this market
• 10.2. List the types of instruments in Corporate Debt Marke
• 10.3. Know the trends in Corporate Debt Market in India
• 10.4. Briefly describe the issuance mechanism for Corporate Bonds
• 10.4.1. Public Issuance
• 10.4.2. Private Placement
• 10.5. Briefly describe Secondary market mechanism for Corporate Debt Markets
• 10.5.1. Trading mechanism
• 10.5.2. Reporting mechanism
• 10.5.3. Clearing & Settlement
• 10.6. Know the key regulatory guidelines for Corporate Debt Market
• 10.7. Briefly mention the valuation of Corporate Bonds