Tuesday, February 10, 2009

Instruments in Capital Markets

The changes in the regulatory framework of the capital market and fiscal policies have resulted in newer kinds of financial instruments (securities) being introduced in the market.

The variations in all the instruments depend on the tenure, the nature of security, the interest rate, the collateral security offered and the trading features, etc.


These are issued by companies and regulated under the SEBI guideline. The rights of investors as debenture holders are governed by the Companies Act, which prohibits the issue of debentures with voting rights.
There are many types of Debentures like Participating debentures, Convertible debentures with options, Third party convertible debentures and many more.


Indian Development Financial Institutions (DFIs) in India, like IDBI, ICICI and IFCI have been raising capital for their operations by issuing bonds like Income Bonds, Tax-free bonds, Capital Bonds etc.
In addition to the interest rates and maturity profiles of these instruments, the issuer institutions have been including a put/call option.

Preference Shares

Owners of preference shares enjoy a preferential treatment with regard to corporate actions like dividend. They also have a higher right of repayment in case of winding up of a company.
The various types of Preference Shares are:
• Cumulative and non-cumulative
• Participating
• Cumulative & Redeemable fully convertible to preference shares
• Cumulative & Redeemable fully convertible to equity shares.

Equity Shares

These represent the proportionate ownership of the company. This right is expressed in the form of participation in the profits of the company. Some hybrid securities like equity shares with detachable warrants are also available.

Some other Variants are Derivatives and Hedging.

of securities occurs when securities issued in physical form are destroyed and an equivalent number of securities are credited into the beneficiary owner's account.
India has adopted dematerialisation route to depository. In a depository system, the investors stand to gain by way of efficient settlements, lower costs and lower risks of theft or forgery, etc....................


Vyom said...

cool vinit you seem to be making more and more progress in your financial study. I dont know much about what you write honestly, so wont be able to comment on the matter as such. But cheers to you as you are doing good work. Explain these things to us in person in future.

vinitsays said...

Thanks for that Vyom.

But as far as I know you, you are better than me in all these stuffs.

Anyway thanks for that comment.

Get Ready To Communicate Globally said...

A good one.....

Bt as far as I know there are few more of them!!!

I expect some more such posts in future.....

vinitsays said...

Thanks for that comment......

Yaa its true that I didnt take into some of them.........

But I would include them in upcoming posts as I get more detailed info about them!!

NeWays Thanx for that comment....

ankit said...

some pool of knowledge this page!

vinitsays said...


Thanks for ur suggestion. I would try to enlarge these concepts, but my idea was just give people a brief knowledge of these instruments..

Ur request would certainly be taken into consideration..

NeWays Thanx for ur comment..