Looking at a bond listing and there are about 12 different fields. I know some of them but not all. Can someone go through what each one means in plain language? Specifically ISIN, face value, coupon rate, YTM, duration, and credit rating. And which ones should I actually care about most before buying?
Going through each one.
ISIN is the International Securities Identification Number. It is the unique identifier for that specific bond, like a PAN for the instrument. Use it to look up the bond on NSE, NSDL, or check the same bond on other platforms.
Face Value or FV is what the bond pays back at maturity. Usually Rs 1,000 or Rs 10,000. The price you pay may be above or below this depending on market conditions.
Coupon Rate is the annual interest rate the issuer pays, always calculated on the face value. A 9% coupon on Rs 10,000 FV means Rs 900 per year regardless of what you paid.
YTM or Yield to Maturity is your actual annualised return if you buy at today’s price and hold to maturity. This accounts for both the coupon and the difference between your purchase price and the face value at maturity. The YTM is what you should compare across bonds, not the coupon.
okay so coupon rate is what the company pays. YTM is what I actually earn. and they can be different if I buy above or below face value
Exactly. If you buy at face value, coupon rate equals YTM. Buy at a discount and YTM is higher than coupon. Buy at a premium and YTM is lower. Duration is the interest rate sensitivity measure – how many years of cash flows it takes to recover your investment. A duration of 4 years means if rates rise 1%, the bond price drops roughly 4%. Shorter duration equals less price risk if you exit before maturity.
and credit rating. AAA vs AA vs A. what is the practical difference in default probability
Historical 3-year cumulative default rates from CRISIL data. AAA: near zero, below 0.1%. AA: approximately 0.15%. A: approximately 1 to 3%. For context, if you hold 100 AA-rated bonds, statistically fewer than one might default over 3 years. The rating does not eliminate risk but it quantifies it. Below A is where default probability becomes meaningful for retail investors.
so in order of importance before buying: YTM to compare returns, credit rating to assess risk, whether it is secured or unsecured, and duration only if I might exit before maturity?
that is exactly the right priority order. ISIN is just for identification. FV tells you the denomination. Coupon is less important than YTM. The four things that actually drive your decision are YTM, rating, secured status, and maturity date. Duration matters only if you are not holding to maturity.