Question
UPSC Prelims 2024 Question:
In India, which of the following can trade in Corporate Bonds and Government Securities?
- Insurance Companies
- Pension Funds
- Retail Investors
Select the correct answer using the code given below:
Answer (Detailed Solution Below)
Option 4: 1, 2 and 3
Detailed Solution
Explanation:
- An active corporate bond market serves multiple functions. Apart from providing borrowers an alternative to bank finance, corporate bonds can lower the cost of long-term funding. Banks are typically constrained in lending long-term because their liabilities are relatively of a shorter tenor. An efficient corporate bond market with lower costs and quicker issuing time can offer an efficient and cost-effective source of longer-term funds for corporates. At the same time, it can also provide institutional investors such as insurance companies and provident and pension funds with long-term financial assets (“preferred habitat”), helping them match the durations of their assets and liabilities.
- In India, all three categories - Insurance Companies, Pension Funds and Retail Investors - can trade in Corporate Bonds and Government Securities.
Therefore, option (4) is the correct answer.
Subject: Economics | Financial Sectors and Capital Market
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