Improving The Money Flow By A Liquidity Window
- IJLLR Journal
- Mar 14
- 1 min read
Mr. Shreyanshu Gupta, BA LLB, ILS Law College, Pune
Introduction
The Securities and Exchange Board of India (SEBI) has unveiled the Liquidity Window Facility1. This innovative facility operates through the stock exchange mechanism and is designed for the betterment of liquidity in debt securities. By doing so, it aims to foster greater investor participation and enhance transparency in the market. This will allow participants to access funds more efficiently, thereby promoting a vibrant trading environment for debt instruments.
Keywords: Bond market, Liquidity window facility, Debt Instruments
Understanding Bonds as Debt Instruments
Bonds are essential debt instruments that provide investors with a fixed interest rate over a specified period, with the principal amount being repaid at a future maturity date and it typically ranges from 5 to 20 years. Unlike shares, where shareholders own a portion of the company, Debt instrument, bondholders are creditors of the company. This distinction is significant as dividends on shares are distributed at the discretion of the board only in profit fiscal years, while interest payments on bonds are obligatory as they function like a loan for the issuer which increases a sense of security for an investor and could provide a steady stream of revenue especially for retail investors.
Need for this Mechanism
India’s bond market, valued at approximately $2.5 trillion2 plays a pivotal role in financing enterprise growth and contributing to overall economic development. Despite its significance, the market faces challenges, including a limited investor base and issues with transparency. To unlock the bond market's full potential, it is vital to broaden participation among various investor categories, including retail investors.
