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

What is a Security?

Investment Classification

Investment

Financial Investment Real Investment

Fixed income Variable income

Various investment avenues

1. Real Estate

2. Gold and Jewellery

3. Government

Securities

4. Company Deposits

5. Mutual Funds

6. Equity

7. ULIP

8. Bank & company

FDs

The Structure of Indian Debt Market

Participants and Instruments In Debt Markets

Gilt edged securitiesGilt 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.

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.

Government of India dated securities (GOISECs):

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.