What are Debt Securities? What are the Different Types of Debt Securities?

executive program by IIM calcutta

Debt securities are financial assets and provide financial stability to their owners. They are created by various government and corporate sectors and are bought by various investors. The debt securities offer high liquidity and cater to tax efficiency. Debt securities attribute to diversifying and stabilising the investment portfolio and aid in providing a high rate of interest. 

Debt securities play a vital role in securing investors' finances and are considered more advantageous than equity securities. They focus on various short-term and long term goals and provide emergency funds to the investors. 

If you are searching for finance management, read and learn in this article the essentials of the capital markets course. 

What are Debt Securities?

Debt securities are made on the basis of a mutual agreement between the borrower and investor and generate a fixed stream of income. Popularly known as fixed-income securities, debt securities aid in restoring the finances of the investors for future needs. The investors provide money to corporate and government sectors in various forms mainly bonds in return for established interest payments and principal amount upon the bond's maturity date. 

Fixed income securities are negotiable financial instruments and provide the investors an issue date, coupon rate, maturity date and face value. The issuers of these securities are also benefited by financing their operations to the investors and expanding their businesses.  Debt securities consist of various forms including floating-rate notes, preferred shares, and mortgage-backed securities.

Debt securities are beneficial compared to equity securities and stock exchange rates as they possess lesser risks and defaults. They consist of bonds including government bonds, zero-coupon bonds, collateralized bonds, municipal bonds and corporate bonds; collateralized securities such as collateralized debt obligations (CDOs); collateralized mortgage obligations (CMOs) and mortgage-backed securities. 

What are the Different Types of Debt Securities? 

Debt securities are beneficial to invest funds and cater to gaining the maximum benefits in the long run. The fixed income securities can be broadly categorised into two types which include: 

Long-Term Debt Security

Long-term debt securities consist of debt instruments that cater to the investors' growth and expansion in the long run. There are various types of long-term debt securities which include: 

Bonds - Bonds are the widely acclaimed form of debt securities that attributes to raising money for borrowers. The bonds signed by the investors provide money to fulfill financial debt and operate a steady cash flow for the borrowers. The annual rate of interest of a bond is its coupon and the end of the fixed-income term is its maturity. There are different kinds of bonds which include Government bonds, Corporate bonds,  Gold Bonds, Savings Bonds, Revenue Bonds, Municipal bonds, Zero-coupon bonds, Green bonds, Fixed-rate bonds, Convertible Bonds, Callable Bonds, Perpetual bonds, Puttable Bonds and Floating-rate bonds. 

Treasury Bonds - Treasury bonds popularly known as T-bonds, mature within 20 to 30 years. The Treasury bonds provide a rate of interest every six months and at the time of maturity, the bonds also give the face value to its investors. Treasury bonds are free of risks and bankruptcy and can be used for children's education or after retirement. 

Debentures - A debenture is a long-term financing process used by corporate sectors and pays a fixed rate of interest to the investors. Corporations and governments issue debentures and mention the maturity dates,  timing of coupon payments and the method of interest calculation to their investors. There are various types of debentures which include Redeemable Debentures, Irredeemable Debentures, Registered Debentures, Unregistered Debentures, Incentivized Debentures, Convertible Debentures and Non-Convertible Debentures.

Short-Term Debt Security 

Short Term Debt Securities are debt instruments provided for a shorter period of time to the investors. The maximum period of debt security is 2-5 years and aid in establishing capital and finance. There are various types of short-term securities which include: 

Commercial paper - Private and overseas sectors of various companies use commercial papers to pay short-term obligations which include bond redemption costs, rate of interest, dividends and account payables. Commercial papers are debt instruments with 30 to 270 days of maturity and a low risk of default. The commercial papers do not provide any financial institution as a guarantor and the minimum value of commercial papers depends on the stock market conditions. 

Promissory Notes - Promissory Notes are known for their short-term fixed-income security and consist of a determined amount of money on a fixed date. They are a kind of mutual agreement where the issuer mentions all kinds of policies and terms to the investors. Promissory Notes consist of a  fixed maturity date but are flexible as the investors can also sell it if they require cash. Individuals and business sectors can use promissory notes to acquire loans from financial institutions and other agencies. These notes are a part of the financial instruments and focus on collateral and covenants. 

  • Treasury Bills -  Treasury Bills are short-term debt security created by the U.S. government. The bills mature within a short period of one year and usually provide a zero coupon (interest) rate. The bills are widely regarded as secure and risk-free and are sold in denominations of $1,000.

  • Banker's Acceptance - The banker's acceptance is short-term security, a form of payment that is guaranteed by a bank to its investors. The banker's acceptance matures between 90 to 180 days and is created at a discount to the face value. They are free of risks and are mostly used in secondary money markets and international trade to make transactions. 


Debt securities focus on the different strategies and policies for stable returns of funds from fixed-income securities. The securities are less volatile, cater to greater liquidity and are suitable for new investors in the market. 

If you are interested in taking up a capital markets course and learning about financial management and investment banking, check out the Executive Programme in Investment Banking And Capital Markets. 

The course is specially designed by Imarticus Learning in collaboration with IIM Calcutta and provides a comprehensive understanding of financial accounting, debt capital markets, equity capital markets and securities market regulations. The IIM Calcutta executive program provides practical exposure by creating a Capstone Project for the students. The course spans a period of one year and provides students with industry-recognised certificates and placement programs. 

For more details, check out the official website and grab the opportunity today! 

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