CAPITAL MARKET INSTRUMENTS

A capital market is a market for securities (debt or equity), where business enterprises and
Government can raise long-term funds. It is defined as a market in which money is provided for
Periods longer than a year, as the raising of short-term funds takes place on other markets (e.g.,
the money market). The capital market is characterized by a large variety of financial
instruments: equity and preference shares, fully convertible debentures (FCDs), non-convertible
debentures (NCDs) and partly convertible debentures (PCDs) currently dominate the capital
market, however new instruments are being introduced such as debentures bundled with
warrants, participating preference shares, zero-coupon bonds, secured premium notes, etc.
1-SHARES
Shares are a unit of ownership in an organisation or corporation. It is a part of the companys
capital. Those individuals, who are getting shares from any company, are called Shareholders.
When a company wants to borrow and increase their capital, they issue their shares in the stock
market (exchange) for their investors.
However, companies also require to refund the amount from their Net Profit. Therefore, shares
play a significant role in the lives of companies and investors / shareholders. Companies can
issue two types of shares, which they offer to investors/shareholders. The two types of shares
are: (a) Equity shares (b) Preference shares
2-BONDS
Bonds are issued by the banks, organisations and financial institutions. They issue bonds for
getting an amount of money from public (as a loan) and commit them a refund with an actual
interest and within a maturity period. They issue their bonds for financing their capital expenses
and their various projects or activities.
This is one of the most frequently used methods for increasing their capital and profits. When
companies offer their bonds to public, they define a specified interest rate and maturity period in
an applicant form. Bonds have various types( i.e risk free bonds, high interest bonds, etc.) and
different companies issued various types of bond to public
3-DEBENTURES
Debenture is an instrument which is used by the Corporations and Government for getting a loan
from public and it is given under the companys Stamp Act. Corporations and Government can
secure their debenture on company assets which it issues as long term loans. In Debentures,
companies are required to announce a fixed return at the time of issuing.
Therefore, holders know that, how much amount they will get in future by issuer. Debentures
have various advantages for holders and issuers. It implies that holders know that how much
amount they will get in future, therefore they do not worry about their payment and, in general,
debentures are freely transferable by their holder to others. Therefore, holders have a right to
transfer their shares to anyone before their redemption.


4-FI XED DEPOSI T
Fixed Deposit is that kind of bank account, where the amount of deposit is fixed for a specified
period of time. All Commercial banks are given these opportunities to their customers for
opening a fixed account in their bank. In a Fixed account, the amount of deposit is fixed, which
means we cannot withdraw an unlimited amount from this account, therefore it is also called a
Fixed Deposit.
If an account holder wants to withdraw a small amount of money from their account, then he will
require closing of the Fixed deposit account. The main purpose of account holders to open this
account, is to earn interest money from their actual money, which is given by the banks during a
specified period of time.
5-GOLD ETF
Gold ETF is one of the most popular funds as it does not get influenced due to stock fluctuations
or inflation. Gold ETF fund is a fiscal instrument which works as a mutual fund and whose
prices are depending upon the market price of gold. When the market price of gold increases,
gold ETF prices also increase.
The services of Gold ETF fund transfers is available in few stock exchanges, such as Mumbai,
Paris, Zurich and New York. Gold ETF fund provides a variety of advantages to their holders,
such as Low cost, Tax advantage, Gold purity, there is no need to worry about safety, Issue of
selling gold bars and also beneficial in short term investments.
6-WARRANT
a warrant is a security that entitles the holder to buy the underlying stock of the issuing company
at a fixed exercise price until the expiry date. Warrants and options are similar in that the two
contractual financial instruments allow the holder special rights to buy securities. Both are
discretionary and have expiration dates. The word warrant simply means to "endow with the
right", which is only slightly different from the meaning of option.
Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer
to pay lower interest rates or dividends. They can be used to enhance the yield of the bond and
make them more attractive to potential buyers. Warrants can also be used in private equity deals.
Frequently, these warrants are detachable and can be sold independently of the bond or stock.
In the case of warrants issued with preferred stocks, stockholders may need to detach and sell the
warrant before they can receive dividend payments. Thus, it is sometimes beneficial to detach
and sell a warrant as soon as possible so the investor can earn dividends






7. EQUI TY SHARES WI TH DETACHABLE WARRANTS
A warrant is a security issued by company entitling the holder to buy a given number of shares
of stock at a stipulated price during a specified period. These warrants are separately registered
with the stock exchanges and traded separately. Warrants are frequently attached to bonds or

preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends.
Ex-Essar Gujarat, Ranbaxy, Reliance issue this type of instrument.
8. FULLY CONVERTI BLE DEBENTURES WI TH I NTEREST
This is a debt instrument that is fully converted over a specified period into equity shares. The
conversion can be in one or several phases. When the instrument is a pure debt instrument,
interest is paid to the investor. After conversion, interest payments cease on the portion that is
Oral Tution Classes-EIRC of ICSI Securities Laws and Compliances converted. If project
finance is
raised through an FCD issue, the investor can earn interest even when the project is
under implementation. Once the project is operational, the investor can participate in the
profits through share price appreciation and dividend payments
9.HEDGE FUND
A hedge fund is an investment fund open to a limited range of investors that undertakes a
wider range of investment and trading activities in both domestic and international markets,
and that, in general, pays a performance fee to its investment manager. Every hedge fund has
its own investment strategy that determines the type of investments and the methods of
investment it undertakes. Hedge funds, as a class, invest in a broad range of investments
including shares, debt and commodities. As the name implies, hedge funds often seek to hedge
some of the risks inherent in their investments using a variety of methods, with a goal to generate
high returns through aggressive investment strategies, most notably short selling, leverage,
program trading, swaps, arbitrage and derivatives.
Legally, hedge funds are most often set up as private investment partnerships that are open to
a limited number of investors and require a very large initial minimum investment.
Investments in hedge funds are illiquid as they often require investors keep their money in the
fund for at least one year.