What is a Security?

Security is a generic term that refers to a debt or equity IOU issued by

a borrower or issuer.

- Debt security or bond – an IOU promising periodic payments

of interest and/or principal from a claim on the issuer's earnings

- Equity or stock – an IOU promising a share in the ownership

and profits of the issuer
 Investment Classification

Investment

Financial Investment Real Investment

Fixed income Variable income

Various investment
avenues

1. Real Estate 1. Equity

2. Gold and Jewellery
2. ULIP
3. Government
3. Bank & company
Securities
FDs
4. Company Deposits

5. Mutual Funds
The Structure of Indian Debt Market
Participants and Instruments In Debt Markets
Gilt edged securities

 The term government securities

encompass all Bonds & T-bills issued
by the Central Government, and state
governments. These securities are
normally referred to, as "gilt-edged" as
repayments of principal as well as
interest are totally secured by
sovereign guarantee.
 Bill Market

 Treasury Bill market- Also called the T-Bill

market
 These bills are short-term liabilities (91-day,
182-day, 364-day) of the Government of
India
 It is an IOU of the government, a promise to
pay the stated amount after expiry of the
stated period from the date of issue
 They are issued at discount to the face value
and at the end of maturity the face value is
paid
.
Treasury Bills
 For example a Treasury bill of Rs. 100.00 face
value issued for Rs. 91.50 gets redeemed at the
end of it's tenure at Rs. 100.00
 The rate of discount and the corresponding
issue price are determined at each auction
 RBI auctions 91-day T-Bills on a weekly basis,
182-day T-Bills and 364-day T-Bills on a
fortnightly basis on behalf of the central
government
Who can invest in T-Bill

 Banks, Primary Dealers, State

Governments, Provident Funds,
Financial Institutions, Insurance
Companies, NBFCs, FIIs (as per
prescribed norms), NRIs & OCBs can
invest in T-Bills.
Government of India dated securities (GOISECs):

 GOISECs are issued by the Reserve Bank of India on

behalf of the Government of India. These form a part of
the borrowing program approved by Parliament in the
Finance Bill each year (Union Budget).

 They have maturity ranging from 1 year to 30 years.

 GOISECs are issued through the auction route. The RBI

pre specifies an approximate amount of dated securities
that it intends to issue through the year

 Securities are held in the form of promissory notes or

stock certificate.
Semi govt Dated Securities
 Promissory notes issued by the institution &
corporations set by the central & state govt
 These are issued to meet their financial needs
of their development activities
 These carry more higher rate of interest then
govt dated securities.
 Commercial banks will handled the process.
Debenture
 A Debenture is a debt security issued by a
company (called the Issuer), which offers to pay
interest in lieu of the money borrowed for a
certain period.
 These are long-term debt instruments issued by
private sector companies. These are issued in
denominations as low as Rs 1000 and have
maturities ranging between one and ten years.
Types of Debentures
 Secured & Un secured debentures
 Unsecured have no charges on any specific assets of the
company
 Secured carry a fixed or floating charge on the assets of the
company.

 Convertible & Non – Convertible Debentures

 Convertible debentures are the ones which can be converted
into equity shares at the option of the debenture holders.

 Registered & Bearer Debentures

 Based on transferability
 Bearer/Unregistered are freely negotiable & can be transferred
by simple endorsement
 Registered can be transferred only through Transfer Deeds.
Difference between debenture
and bond
Long-term debt securities issued by
the Government of India or any of the
State Government’s or undertakings
owned by them or by development
financial institutions are called as
bonds. Instruments issued by other
entities are called debentures.
Zero Coupon Bonds

 A Plain Vanilla bond pays coupon interest every

period, typically every six months, and repays the
face value at maturity.
 A Zero Coupon Bond on the other hand does not
pay any coupon interest.
 It is issued at a discount from the face value and
repays the principal at maturity.
 The difference between the price and the face
value constitutes the interest for the buyer.
Zero Coupon Bonds

 Zero coupon bonds are called zeroes by

traders.
 They are also referred to as Deep Discount
Bonds.
 They should not be confused with Discount
Bonds, which are Plain Vanilla bonds which
are trading at a discount from the face value.
Preference Shares
 So called because these have preference over equity shares in the
matter of distribution of post – tax profit,
 Have a prior claim on the assets of the company in the event of
liquidation.
 In terms of risk, these are less risky then equities, but more risky
than secured debentures
 Preference shares are entitled to a fixed dividend, and cumulative
preference share retain their retrospective claim on dividend when
the company is not in a position to declare any dividend.
 Sometimes these shares are convertible into equity shares after a
stated number of years,
 When preference shares are redeemable, the company pays off
the shareholder on a certain date, or issues equity shares of the
value,
 But when they are irredeemable, the shareholder gets the fixed
dividend in perpetuity or as long as the company lasts.
 Preference shareholders may or may not be given voting rights;
they can usually only vote if their dividends are in arrears.
Equity Shareholders
 They are the owners of the company, sharing its
risks, profits, and losses.
 They have a residual claim on the earnings and assets
of a company.
 They are paid their share of the company’s profits
after all other claims are met, and in the event of the
liquidation of the company they share whatever is left
of the company after all its creditors have been paid.
 They enjoy limited liability, i.e., liability only to the
extent of their shareholding.
 Only equity shareholders are entitled to vote at the
company’s meetings, thus controlling the
management.
 If the company prospers, it is the equity shareholders
who is the greatest gainer.