FINANCIAL INSTRUMENT

FINANCIAL INSTRUMENT

Types of securities

1. Corporate securities

2. Gilt edged securities (Government securities)

3. Primary securities

4. Derivative securities

5. Variable Yield securities

6. Fixed Income Bearing securities

7. Negotiable securities

8. Non negotiable securities

No par stock / shares

No par stock means shares having no face value. The share certificate of the company simply states the number of shares held by its owner without mentioning any face value. Dividend on such shares is paid per share and not as a percentage of fixed nominal value of shares.

Sweat equity

The term sweat equity shares means the equity shares issued by a company to employees or directors at a discount for consideration other than cash or for providing know – how or making available rights in the nature of intellectual property rights.

Classification of Equity shares

1. Blue chip shares: These are the shares of well reputed companies having an impressive track record for better earnings and stable dividend policies.

2. Growth shares: These are the shares of growing companies, having wide scope for expansion and diversification of their business by retention of earnings. The performance of such companies is above average.

3. Income shares: These are the shares of companies having fairly stable operations with relatively limited growth opportunities. The market price of these shares are more or less stable.

4. Defensive shares: These are the shares of companies that are relatively unaffected by the ups and downs in general economic conditions. Shares of companies engaged in the processing of food, beverages, drugs, fertilizers etc. are regarded as defensive shares.

5. Cyclical shares: These are the shares whose yield and market price move upward and downward according to the phases in the business cycle like depressions and booms. During boom period, the yield and market price move upward, viceverse.

6. Speculative shares: These shares are the targets of speculators in the market.

7. Stalwarts: Shares of giant companies that are faster than slow growers but are able to surpass the growth rate of Gross National Product of a country are known as stalwarts.

8. Fast Growers

9. Slow Growers

10. Alpha shares: These are shares which are most frequently traded in the market. They are also called specified or cleared securities. They are included under group A shares while listing on a stock exchange.

11. Equity with 1oo percent Safety Net: Some companies make ‘1oo % safety net’ offer to the public. It means that they give a guarantee to the issue price.

Euro _ Issues

1. Global Depository Receipts (GDR): It represents a certain number of equity shares and are quoted and traded in dollar terms. The shares are issued by the issuing company to intermediary called ‘depository’. The equity shares are registered in the name of depository and who subsequently issues the GDR to the investors.

2. ADR: American Deposit Receipts

3. EDR: European Deposit Receipts

4. Foreign Currency Convertible Bonds (FCCB): These are bonds issued to and subscribed by non resident investors in foreign currency and are convertible into ordinary shares of the issuing company at a fixed price.

INNOVATIVE DEBT INSTRUMENTS

1. Deep Discount Bonds: Large discount and they mature at par. No interest is payable during the life of the deep discount bonds.

2. Zero Coupon Bonds: ZCBs represent bonds that are sold without any coupon rate or explicit rate of interest and have a fixed maturity period for redemption at a premium. ZCBs are first issued by Mahindra and Mahindra.

3. Secured Premium Note: SPN is a debenture, redeemable at a premium. It is first issued by TISCo. in 1992. It is issued at par, with Zero Coupon rate, but redeemable in different instalments at a premium.

4. Callable Bonds: A callable bond is one where the borrowers have an option to redeem the bonds at any time after the initial stipulated period.

5. Putable Bond: It is one where the holder has an option to get the bond redeemed at any time after the initial stipulated period.

6. Junk Bonds: These are speculative in nature and are high risk, high yield bonds. The coupon rate of interest is high on these bonds.