CONSULTATION PAPER DEPARTMENT OF DEBT AND HYBRID SECURITIES

 

📢Announcements

Sebi has released a Consultation paper on expanding the scope of the Sustainable Finance framework in the Indian securities market Click here to provide your comments.

CONSULTATION PAPER
DEPARTMENT OF DEBT AND HYBRID SECURITIES –POD I

OBJECTIVE
1.1.The objective  of  this consultation  paper is  to  seek  comments, views and suggestions from the public on the proposals related to expanding the scope of sustainable finance framework in the Indian securities market.

1.2.The Hon’ble Finance Minister  in  the  budget  announcements  for  FY  2023-24, inter-alia,made an announcement to simplify,ease and reduce the cost of compliance for participants in the financial sector through a consultative approach.

1.3. Accordingly, to align the process of review with the budget  announcement, a working  group  for review of compliance requirements under SEBI  (Issue  and Listing   of   Non-Convertible   Securities)   Regulations,  2021(hereinafter ‘NCS Regulations’) was formed, which recommended certain measures  to promote the ease of doing business for issuance of non-convertible securities.

1.4. One of the recommendations of the working group was to redefine “green debt security” as “sustainability-linked security” as sustainability-linked security would cover a wider spectrum of sustainable finance instruments whereas green debt securities  appear  to only  reflect  the  instruments  related  to  environmental sustainability.

1.5. Further, SEBI is in receipt of representation from market participants including Confederation  of  Indian  Industry  (CII) to  expand the  scope  of  regulatory framework pertaining to sustainable finance to Include social Bonds, Sustainable Bonds  and  Sustainability-linked  Bonds in addition  to  existing Green  Debt Securities as a mode of raising sustainable finance,in line with global practices.

1.6. it is   also   noteworthy   that   the  Hon’ble  Finance  Minister  in  the  budget announcements for FY 2024-25, inter-alia mentioned that taxonomy for climate finance  for  enhancing  the  availability  of  capital  for  climate  adaptation  and mitigation  will  be developed.

1.7. Building on all these feedback and developments, it is proposed to provide for a framework for Social Bonds, Sustainable Bonds and Sustainability Linked Bonds,Further, it is also proposed to introduce the concept of Sustainable Securitised Debt Instruments.

1.8.The detailed proposals and consultation matters are mentioned in Paragraph 3 to 5 of this consultation Paper.

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Different Types of Returns in Investment

 

💴Different Type of Returns in Investment :-

💰Absolute return

Absolute return refers to the total return a mutual fund has earned over an entire period of time.

✅For instance, if one invested Rs 10,000 20 years back and has now grown to Rs 2 lakh, the absolute return of the investment would be an incredible 1,900 per cent returns. But this tells only half the story, as the Rs 10,000 investment grew to Rs 2 lakh over 20 years.

Key point: Absolute return is a useful metric for investments less than a year old.

💰Compound Annual Growth Rate (CAGR)

CAGR, a fancy way of saying annualised return, measures a fund's yearly return over a long time.

✅Let's take the previous example where Rs 10,000 fund investment grew to Rs 2 lakh over 20 years. In this case, the annualised return is 16.16 per cent. That's still healthy but far more sober than a 1,900 per cent absolute return, right?

Moral of the story:
Absolute returns should be considered if your investment is less than a year old, whereas CAGR comes in while checking an investment's returns over more than one year.

💰Extended Internal Rate of Return (XIRR)

XIRR may sound exotic but it simply measures returns if you staggered your investments over a period of time. SIP is a great example.

✅While CAGR calculates the annualised returns of a one-time investment, XIRR is a better choice to calculate SIP/SWP (systematic withdrawal plan) returns.

Let's now understand trailing return, another metric that measures an investment's performance.

💰Trailing return

Trailing return, also known as point-to-point return, calculates returns between two dates.

✅For example, a one-year trailing return is from August 1, 2023, to August 1, 2024. A five-year trailing return is from June 1, 2019, to June 1, 2024.

Weak point: Trailing return does not convey anything about the consistency or volatility of the fund.

💰Rolling return

Rolling return provides a comprehensive view of a fund's performance over time.

To calculate three-year annual rolling returns over 10 years, you would take the following steps:

√ Calculate the return from Year 1 to Year 3
√ Then, from Year 2 to Year 4
√ Continue this process until you calculate the return from Year 8 to Year 10.

✅Key point: Rolling return shows how consistent a mutual fund has been over a period of time.

Sovereign Gold Bonds Redemption Aug, 2024

 

🎁Sovereign Gold Bonds: 

📢RBI fixes the final redemption price at Rs 6,938 for the SGB August 2016 issue.

🥉The gold bonds were issued at a price of Rs 3,119 per gram in August 2016 by the Reserve Bank of India (RBI). The RBI has designated August 5, 2024, as the final redemption date for the scheme.

🥈The Reserve Bank of India has announced the final redemption price for Sovereign Gold Bonds (SGBs) issued on August 5, 2016. The central bank has fixed the final redemption price at Rs 6,938 per gram, which is 122 percent higher than the issued price. The gold bonds were issued at a price of Rs 3,119 per gram in August 2016 by the Reserve Bank of India (RBI). The RBI has designated August 5, 2024, as the final redemption date for the scheme.

🥇Adjusting for interest, specifically set at 2.75% payable semi-annually on the initial investment amount (issue price), the absolute return totals a little over 144%. When annualised, this equates to a return of approximately 12% CAGR. The final interest amount accumulated on the bonds will be disbursed directly to the holder's bank account, in addition to the redemption amount.

🎖️SGBs are issued by the government of India with a tenure of 8 years. The SGB August 2016 issue is reaching maturity, necessitating redemption. Unlike the optional redemption offered by the Reserve Bank of India at the end of the fifth year, the redemption of this bond is mandatory.

🏅According to official sources, at present, the government does not have immediate plans to introduce a substitute for the SGB scheme if the decision is made to cease its operation.

🥉The future of the scheme will be deliberated upon during a meeting scheduled in September 2024. This meeting will align with the RBI's borrowing calendar meeting, where key decisions regarding the scheme will be taken.