Riding the stock market rollercoaster can be exciting, but it’s also exhausting. Bond investing on the other hand can build a stable and predictable core for your portfolio. And that’s why bond investing is increasingly becoming a smart strategy for investors seeking balance and peace of mind.

But here’s the catch: to truly understand the power of bonds, you need to go beyond just knowing that they are stable and safe. You must understand how they work, how they are priced, and how to measure their real risk and return. And fixed income mathematics or bond mathematics as popularly known, helps you understand the value and risk of a bond or any other debt instrument. The word “mathematics” may sound intimidating, but don’t worry, there are no complex calculus involved, but simple practical math.

Core concepts in fixed income mathematics
1. Time Value of Money (TVM): A 100 rupees today is worth more than the same amount in future. TVM helps you to calculate exactly how much more. By using the TVM formula you can figure out the present value of all those future interest payments you’ll receive when you invest in a bond.

2. Yield to Maturity (YTM): It is the total annual return of a bond if you held it until it matures. Unlike the coupon rate, it is calculated based on several factors such as the bond’s face value, current price, coupon payments, and time remaining till maturity. Using YTM you can compare bonds of different coupon rate and maturities.

3. Duration and Convexity: Interest rate and bond prices are inversely related. Which means, when interest rate goes up, bond prices come down. But to calculate by how much the bond price goes down, you need to understand the measures of duration and convexity. Because they measure a bond's sensitivity to interest rate changes, helping you manage the risk.

Your simple guide to Indian debt market and how to learn more

Do you want to move beyond fixed deposits and explore other debt market products

Fixed income mathematics course by NISM & FIMMDA

The Introduction to Fixed Income Mathematics course, jointly developed by the NISM and the Fixed Income Money Market and Derivatives Association of India (FIMMDA), is one of the most structured courses available on this topic.

This course is divided into three modules that build on each other perfectly:

1. Pricing of Bonds: The first module builds your foundation by explaining the concept of Time Value of Money (TVM) and systematically takes you through all the concepts needed to price different types of bonds.

2. Calculating the Bond Returns: The second module gets into the nitty-gritty of calculating returns. It will explain the concept of Yield to Maturity YTM) and discuss yield curve theories, required for understanding the impact of broader economic activities on the bond market.

3. Understanding Risks in Bond Investments: In this third and final module you’ll learn to calculate Duration, Modified Duration, and Convexity. These are important to understand and manage the risk of a bond.

The course is entirely online, giving you the flexibility to learn over a period of 30 days. It has around 3 hours of learning content including interactive quizzes. The course fee is ₹2000/- plus taxes. And when you successfully complete the course, you will receive a joint certificate issued by NISM and FIMMDA.

Whether you’re finance student looking to build a serious career in finance, an analyst, a portfolio manager, or an investor looking beyond the stock market, this course will help you learn about fixed income mathematics which is non-negotiable. Explore the course details and feel free to reach out (elearning@nism.ac.in) if you have any questions.

These are some of the other courses jointly offered by NISM and FIMMDA, covering various aspects of the fixed income securities market.

Introduction to Fixed Income Securities
Overview of Indian Debt Markets
Introduction to Interest Rate Derivatives

Happy learning!

Author: Sandeep K. Biswal, Deputy General Manager-CCC, NISM