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.

Debentures

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.


Bonds

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.


Dematerialisation 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....................

Reform the Debt Market

INDIAN policy makers have been quick to ease restrictions on foreign investments in corporate bondsas well as in government debts.
The immediate intent ofcourse is to attract more foreign debt inflows which are to some extent drying up. However, the reform of the debt market was suggested long ago to allow greater flexibility to overseas investors so that they could switch to debt when equities market faced a downtown.

The opening up of the debt market to foreign institutuional investors(FII) may have got delayed because of worries that excessive flows could impact yields of government paper may have shaped their views earlier. Also, reluctance to have foreigners holding too much of government papaer may have shaped their views earlier.

BUILD FRAMEWORK FOR DEBT MARKET

The latest changes in the debt market only need to reinforce the need to quickly refocus on building a vibrant market for private debt in India. Indian corporates are still captives to Bank Financing, especially in absence of functional bond market.

A major blame for strict defragmentation of Bond Market has been overdue to RBI which guarded this turf for time until SEBI overtook the proceedings.
In the last decade or so, Indian Market has shown up to global standards . In recent times it has developed into a good settlment and clearing system, affording decent volumes and derivatives.

Globally the Debt Market has been a counter to what was expected, but countering the global response, response on India has been somewhat overwhelming. But seeing the experts opinion this market has not favoured India to a big extent.....

There is a need for restructuring of bond market according to the need and size of the market..............