What are Securities? Defining the Securities Market in India
The Securities Market in India has seen a lot of growth in recent years. With the rise of online trading platforms, it has become easier for investors to buy and sell securities. One of the most important factors that investors consider while choosing a trading platform is the brokerage charges.
Many online trading platforms offer low brokerage charges in India. These platforms like Goodwill offer the lowest brokerage charges in India for equity trading and other services.
Definition of Securities
Securities are financial instruments that represent ownership rights or creditor relationships in a corporation, government, or other organization. They are traded in securities markets which are regulated by financial authorities.
Securities can be classified into two categories: debt securities and equity securities. Debt securities are financial instruments that represent a loan made by an investor to an issuer. The loan will be returned by the issuer with interest over a predetermined time frame. Examples of debt securities include bonds, debentures, notes, and masala bonds.
Equity securities are financial instruments that represent ownership in a firm. Equity shareholders have voting rights and can participate in the company’s profits. Examples of equity securities include common stock and preferred stock.
The securities market is a place where investors can buy and sell securities. The market is regulated by financial authorities to ensure that investors are protected from fraud and other illegal activities. The price of securities is determined by supply and demand and is influenced by a variety of factors such as economic conditions, company performance, and investor sentiment.
What comes under Securities Market
We will go through some of the terms frequently used in the securities market in this part, including equity shares, warrants, convertible warrants, debentures, central and state government bonds, notes, commodities, hybrid/ structured products, ETFs, indices, mutual fund units and masala bonds.
1. Equity Shares
Equity shares are a category of security that represents ownership in a company. They are also known as common shares or ordinary shares. Equity shareholders have voting rights and can participate in the company’s profits.
When it comes to investing in equity shares, it is important to choose the right broker. Many brokers in India offer equity trading services. These brokers offer low brokerage charges and other services such as research reports, trading platforms, and customer support. Goodwill offers the lowest equity brokerage in India.
2. Debentures/Bonds/Notes/Masala Bonds
Debentures, bonds, notes, and masala bonds are all types of debt securities. They are financial instruments that represent a loan made by an investor to an issuer. The issuer promises to pay back the loan over a specified time with interest.
Debentures are unsecured debt securities that are backed only by the creditworthiness of the issuer. They are usually issued by companies and have a fixed interest rate. There are convertible, non-convertible and partially convertible debentures.
Bonds are similar to debentures but are usually secured by collateral such as property or equipment. They are also issued by companies and have a fixed interest rate.
Notes are short-term debt securities that have a maturity period of less than one year. They are usually issued by companies and have a fixed interest rate.
Masala bonds are rupee-denominated bonds that are issued in India by foreign entities. They are similar to other debt securities but are denominated in Indian rupees.
3. Warrants and Convertible Warrants
Securities such as warrants and convertible warrants allow the holder the option to purchase shares of a company’s stock at a predetermined price. They are like options but are issued by the company itself.
Warrants are securities that give the holder the right to buy a company’s stock at a fixed price for a specified time. They are usually issued by companies as part of a financing deal.
Convertible warrants are similar to warrants but can be converted into equity shares later. They are usually issued by companies as part of a financing deal.
Both warrants and convertible warrants can be traded on the stock exchange like other securities.
Indices are performance indicators that reflect the behaviour of a certain market segment or the market as a whole. They are created by selecting a group of stocks that are representative of the market or a specific sector or segment. A base period and a base index value are taken into consideration while calculating indices price. They help investors and traders to compare the returns of different stocks or portfolios.
Some of the most important indices in India are NIFTY 50, BSE Sensex, NIFTY Bank, NIFTY IT, NIFTY Pharma, etc. These indices help investors track the performance of different sectors and make informed investment decisions.
5. Mutual Fund Units
A sort of financial instrument called a mutual fund collects money from numerous people to buy securities like stocks, bonds, and other assets. You purchase units of a mutual fund when you invest in one. Each unit’s value is determined using the fund’s net asset value (NAV). The market value of each unit of all the securities held by a mutual fund scheme is represented by the NAV.
Mutual fund investing can be a beneficial method to diversify your portfolio and lower risk. There are different types of mutual funds available in the market such as equity funds, debt funds, hybrid funds, etc. Each type of fund has a distinct risk profile and investing objective.
6. Exchange Traded Funds
Exchange-traded funds (ETFs) are a type of investment fund that is traded on stock exchanges like individual stocks. ETFs hold assets such as stocks, bonds, or commodities and typically aim to track the performance of a specific index.
ETFs provide investors with a method to diversify their holdings, much like mutual funds do. However, ETFs have some advantages over mutual funds such as lower fees and greater flexibility in trading.
Some of the most popular ETFs in India are Nifty BeES, Gold BeES, Bank BeES, etc. These ETFs provide investors with exposure to different sectors and asset classes.
7. Hybrids/Structured Products
Hybrids/Structured Products are investment products that combine the features of two or more different financial instruments. These products are designed to provide investors with a balance between risk and return.
Convertible bonds, which are bonds that can be changed into stock shares at a later, and preferred stock, which is a class of stock that pays a fixed dividend and has priority over common stock in the case of bankruptcy, are two instances of hybrid goods.
Structured products are another type of hybrid product that is designed to provide investors with exposure to a specific asset class or market. These products typically consist of a combination of bonds and derivatives such as options or swaps.
Hybrids/Structured Products can be complex and may not be suitable for all investors. It is important to carefully consider the risks and benefits of these products before investing.
Commodities are raw materials or primary agricultural products that can be bought and sold, such as gold, silver, oil, wheat, etc. Commodities are traded on commodity exchanges and can be bought and sold in the form of futures contracts.
Commodity futures contracts are agreements to buy or sell a specific quantity of a commodity at a predetermined price on a specific date in the future. Producers and consumers of commodities utilize these contracts to protect themselves from changes in price.
Commodity-linked securities are financial instruments that are tied to the price of one or more commodities. These securities usually give some payout to holders.
In conclusion, the securities market is an important part of the financial system. It gives investors a place to put their money and a platform for businesses to obtain financing.
If you are interested in investing in the securities market, it is important to do your research and choose the right broker. You can open a demat account online with Goodwill’s brokerage platform and start investing in equity shares, debentures, bonds, notes, masala bonds, indices and commodities.