Default
A failure by a borrower to pay interest or principal when due, or a breach of another obligation under the debt agreement.
How it is identified
Test: a scheduled payment is missed beyond any grace period, or a covenant breach triggers an event of default
Unit
qualitative
In depth
Default is not the same as total loss: bondholders recover through the resolution process, and recovery rates vary enormously with seniority and security. In India the Insolvency and Bankruptcy Code sets the process and the waterfall, with secured financial creditors ranking ahead of unsecured ones and equity last. Technical default — breaching a covenant without missing a payment — can accelerate the entire debt, which is why covenants matter as much as coupons. Ratings agencies use a D rating for default, and the transition from a higher rating is often abrupt.
Worked example
A defaulted unsecured bond recovers 35 paise in the rupee after a three-year resolution. On a ₹10,00,000 holding that is ₹3,50,000, received three years late, against ₹10,00,000 plus interest promised.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Default” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.