Accrued Interest

When a bond changes hands between coupon dates, the buyer pays the seller the interest that has accrued so far, because the buyer will receive the whole next coupon. This is why the amount actually paid — the dirty price — exceeds the quoted clean price. Failing to account for it makes a bond look cheaper than it is and distorts any yield calculation done from the quoted price alone. Day count conventions differ between instruments, with Indian government securities using an actual-by-actual basis, and the convention affects the amount.