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International Journal of Trend in Scientific Research and Development (IJTSRD)

International Open Access Journal | www.ijtsrd.com

ISSN No: 2456 - 6470 | Volume - 2 | Issue – 6 | Sep – Oct 2018

Capital Market Instruments in India - A Profile


Prasanta Kumar Dey
Associate Professor, Department of Commerce, Sir Gurudas Mahavidyalaya,
Mahavidyalaya
Ultadanga
Ultadanga, Kolkata, West Bengal, India

ABSTRACT
To have an idea on Capital Market, it is very much such as commercial paper, certificate
certifica of deposits,
essential to know important instruments inter alia treasury bills etc. which mature within a year are
used in primary and secondary segments of capital traded. Capital market helps to channel the wealth
we of
market. Capital market instruments are those savers who can put it to the long term productive
instruments which are used by the corporate entities users such as companies and governments.
for raising
ising medium and long term funds from the
capital market. Capital market instruments used for Capital market instruments used for market trade
market trade are of two types – direct capital market include shares, debentures, bonds, foreign exchange,
instruments and indirect capital market instruments. fixed deposits, derivatives etc. As they involve equity
The direct instruments are equity / ordinary shares, and debt securities, the instruments are also
preference
eference shares, debentures / bonds / notes and called securities and the market is referred to
innovative debt instruments. Among these, securities as securities market. A derivative is an instrument
like equity and preference shares are ownership whose value is derived from the value of one or more
instruments while debentures / bonds / notes and underlying assets,, which can be commodities,
innovative debt instruments are creditor creditor-ship precious metals, currency,, bonds, stocks, stocks
securities. Derivative instruments and others are the indices etc. Four most common examples
indirect instruments. This article contains a profile on of derivative instruments are Forwards, Futures,
various concepts and terminologies relating to Options and Swaps. Capital market instruments in
instruments used in the capital market of India. At India can be again classified into three categories:
first, various conventional instruments of capital Pure, Hybrid and Derivatives. The pure instruments
market have been discussed. Then, some important are equity
quity shares, preference shares, debentures and
concepts and terminologies relating to non non- bonds which are issued with the basic characteristics
conventional instruments for trading on Indian withoutt mixing the features of other instruments are
bourses have been discussed. called pure instrument. The hybrid instruments are
instruments
nstruments which are created by combining the
Keywords: Bonds, Debentures, Derivatives, Funds, features of equity, preference and bond, such as
Securities, Shares convertible
onvertible preference shares,
shares non-convertible
debentures with equity warrant,
warrant partly convertible
INTRODUCTION debentures, secured
ecured premium notes etc. The derivative
Capital market is a sine-quo-nonnon for speedy growth instrument is a financial instrument which derives its
and sustainable development of a country’s economy value from the value of some other financial
and India is no exception to it. Capital
apital market is a part instruments or variables.
of financial market where medium and long term
securities like stocks and bonds are traded
traded. From here, Capital market instruments – Savings of investors
the business enterprises like companies and are linked to investments through a range of complex
governments can raise medium and long long-term funds. financial products generally called capital market
The Indian Equity Markets and the Indian Debt instruments include shares, debentures, bonds or other
markets together form the Indian Capital market. It is marketable securities
rities of a like nature issued by any
different from money market where monetary assets incorporated company or body corporate,
co derivatives,

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International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
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units issued by any collective investment scheme to reserves and surplus (net worth)
wor divided by the
the investors in such schemes, any certificate or number of outstanding shares. The price at which
instrument
ument (by whatever name called) issued to an equity shares are traded in the stock market is
investor by any issuer being a special purpose distinct their market value. However, the market value of
entity which possesses any debt or receivable, unlisted / rarely traded shares is not available. Few
including mortgage debt, assigned to such entity, and variants of the equity shares are discussed
dis below:
acknowledging beneficial interest of such investor in A. Bonus shares – As per Section 65 of the
such debt or receivable, including mortgage debt, as Companies Act 2013, a company
compan may issue fully
the case may be; government securities and such other paid-up equity shares as bonus to its members, in
instruments as may bee declared by the Central any manner whatsoever, out of (i) its free
Government to be securities. This section of the reserves; (ii)) the securities premium account; or
article contains short discussion on various (iii) the capital redemption reserve account
instruments relating to the Indian capital market in provided
rovided that no issue of bonus shares shall be
brief as follows - made by capitalizing reserves created by the
1. Equity / Ordinary shares - The ownership revaluation of assets. The bonus shares shall not
capital of a company is divided into a number of be issued in lieu of dividend.
indivisible units of a fixed amount. These units are B. Right shares - Right ight shares are those shares
known as shares. Thus, if the share capital of a which
ich are issued after the original issue of shares
company is Rs. 5 lakh divided into 50,000 units of but having an inherent right of the existing
Rs. 10, each unit of Rs. 10 shall be called a share shareholders to subscribe to these shares in
of the company. As per Section ction 85 (2) of the proportion to their holding. Such shares must be
Indian Companies Act, 1956 equity shares are offered to the existing equity shareholders on pro
those shares which are not preference shares. rata basis. The offer of this type of shares shall be
Again, as per Section 43 of the Companies A Act made in the form of a notice giving the particulars
2013, the share capital of a company limited by of shares offered and within a time not less than
shares shall be of two kinds, namely ((a) equity 15 days from the date of the offer for acceptance
share capital and (b)) preference share capital. of such offer. These shares can also be issued to
Here, equity share capital with reference to any the new members when the existing shareholders
company limited by shares means all share capital do not accept the offer within a period of 15 days
which is not preference share capital. In other or more. Usually, these shares are issued among
words, shares which do not enjoy any preferential the existing shareholders at a concessional rate.
right in the matter
atter of payment of dividend or But before issuing such shares the public
pub company
repayment of capital are known as equity shares. must follow the SEBI (Secu Securities and Exchange
Equity share may be issued with voting rights or Board of India) Guidelines in this regard.
with differential rights as to dividend, voting or C. Sweat equity shares - A company may issue
otherwise in accordance with such rules as may be sweat equity shares of a class of shares already
prescribed. Equity shares are also known as issued, if the following conditions
c are fulfilled,
ordinary shares and typically have a par / face namely - (a) the issue is authorized by a special
value and the most popular denomination is Rs. resolution passed by the company; (b) the
10. However, companies are permitted to issue resolution specifies the number of shares, the
shares of any par value of not less than Re. 1 and current market price, consideration, if any, and the
in multiples of Re. 1. The price at which the class or classes of directors or employees to whom
equity / ordinary shares are issued is the issue such equity shares are to be issued; (c) not less
price. The issue price for new companies than one year has, at the date of such issue,
particularly without any profit track
track-record is at elapsed since the date on which the company had
par which is equal to the face value. Issue price commenced business; and (d) where the equity
may be higher for existing profit making shares of the company are listed on a recognized
companies, the difference / excess being the share stock exchange, the sweat equity shares are issued
premium. Equity shares may also be issued by the in accordance with the regulations made by the
company at discount which is lower than face Securities and Exchange Board in this behalf and
value. In case of existing company, tthe book value if they are not so listed, the sweat equity shares
of ordinary shares refers to the paid up capital plus are issued in accordance with such rules as may be

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International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
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prescribed.
ibed. The rights, limitations, restrictions and are entitled to get arrear dividend out of
o profit of
provisions as are for the time being applicable to the subsequent year or years.
equity shares shall be applicable to the sweat D. Non-cumulative
cumulative preference shares
s – But, the
equity shares issued under this section and the holders of non-cumulative
cumulative preference shares are
holders of such shares shall rank pari passu with not entitled to get arrear dividend out of profit of
other equity shareholders. subsequent year or years in case of non- non
D. Share Warrant - A share warrant is a document availability of profit to declare
d dividend in any
issued by the company under its common seal, year.
stating that its bearer is entitled to the shares or E. Convertible preference shares
s - Such shares can
stock specified therein. A warrant holder acquires be converted to equity shares at the option of the
only the right / option but he / she have no holder. Hence, these shares are also known as
obligation
bligation to acquire the equity shares. Warrants quasi equity shares. Conversion of preference
are usually issued along with other instruments or shares in to bonds or debentures is permitted if
can be issued separately. Share warrants are company wishes. The conversion feature makes
negotiable instruments. They are transferable by preference shares more acceptable to investors.
mere delivery without registration of transfer. Even though the market for preference shares is
Warrants can bee issued in two forms viz.: (1) not good at a point of time, the convertibility will
Detachable warrant and (2) Non Non-detachable make it attractive.
warrant. F. convertible preferable shares
Non-convertible s – The
2. Preference Shares - Preference share hare is a unique preference shares without the right of conversion
type of long-term
term capital market instrument and it are called non-convertible
convertible preference shares.
combines some of the features of equity shares as G. Redeemable preference shares s - A company
well as some of debentures. As a hybrid form of may issue redeemable preference shares to avoid
financing instrument, it is similar to debentures in fixed liability of payment, to increase the earnings
so far as it: (i) carries a fixed / stated rate of of equity shares and to make the capital structure
dividend (ii) ranks higher than equity as a simple or such other reasons. These shares are
claimant to the income / assets (iii) normally does redeemed after a given period. Such shares can be
not have voting rights and nd (iv) does not have a repaid by the company on certain conditions, viz.:
share in residual earnings / assets. It also partakes (i) the shares must be fully paid up; (ii) it must be
some of the attributes of equity capital, namely, (i) redeemed ed either out of profit or out of reserve
dividend on preference capital is paid out of fund for the purpose; (iii) the premium must be
divisible / after tax profit, that is, it is not tax paid if any.
deductible (ii) payment of preference dividend H. Irredeemable preference sharess – A company
depends on the discretion of the management, that may issue irredeemable preference shares and
is, it is not an obligatory payment, and non non- these
hese shares are not redeemable except on the
payment does not force insolvency / liquidation liquidation of the company.
and (iii) irredeemable types of preference shares 3. Debentures - Debenture is an instrument under
have no fixed maturity date. There are se several seal evidencing debt. The essence of debenture is
types of preference shares discussed as below: admission of indebtedness. It is a debt instrument
A. Participating preference shares - This kind of issued by a company with a promise to pay
shares are entitled to get regular dividend at fixed interest and repay the principal on maturity.
rate. Moreover, they have a right for surplus of the Debentures represent
epresent creditor ship securities and
company beyond a certain limit. These debenture-holders
holders are long term creditors of theth
shareholders are also allowed to share in surplus company. As a secured instrument, it is a promise
assets of the company being wound up. to pay interest and repay principal at stipulated
B. Non-participating preference shares hares – The times. In contrast to equity capital, which is i a
holders of this type of shares are not entitled to variable income security (i.e. in respect of
share the additional benefits that are happened in dividend), the debentures are fixed income (i.e. in
case of participating
ting preference shares. respect of interest) security. Sec 2 (12) of the
C. Cumulative preference shares - For such type of Companies Act, 1956 states that debenture
shares, the
he dividend not paid in a particular year includes debenture stock, bonds and other
due to non-availability
availability of profit, the shareholders securities of a company and Sec 2(30) of the t

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International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
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Companies Act, 2013, debenturedebentureǁ includes issuing other securities less costly to the company
debenture stock, bonds or any other instrument of in the place of the old ones.
a company evidencing a debt, whether F. Convertible Debentures - When an option is
constituting a charge on the assets of the company given to convert debentures into in equity shares
or not. It is customary to appoint a trustee, usually after a specific period, they are called as
an investment bank too protect the interests of the convertible debentures. Convertible debentures
debenture holders. This is necessary as debenture givee the holders the right to convert them into
deed would specify the rights of the debenture equity shares on certain terms. They are entitled to
holders and the obligations of the company. There a fixed income till ill the conversion option is
are several types of debentures discussed as exercised and would share the benefits associated
below: with equity shares after the conversion. All the
A. Bearer Debentures - Bearerr debentures are details about conversion terms, namely,
payable to bearer and are transferable by mere conversion ratio, conversion premium / price and
delivery. Interest coupons are attached to the conversion timing are specified in the offer
certificate or bond. As interest date approac
approaches, document / prospectus. Companies can issue Fully
the appropriate coupon is clipped off by the holder Convertible Debentures (FCDs) or Party
of the bond and deposited in his bank for Convertible Debentures (PCDs).
collection.
ollection. The bank may forward it to the fiscal G. Non-convertible
convertible Debentures – If the company
agent of the company and proceeds are collected. issues, the holders of such debentures can buy a
Such bonds are negotiable by delivery. specified number of shares from the company at a
B. Registered Debentures - In the case of registered predetermined price. The option can be exercised
debentures, the name and address of the holder only after a specified period.
and date of registration are entered in a book kept H. Perpetual Debentures- If the debentures are
by the company. The holder of such a debenture issued subject to redemption on the happening of
bond has nothing to do except to wait for interest specified events which may not happen or an
payment which is automatically sent him on every indefinite period, i.e. winding
nding up, they are called
payment date. When such ch debentures are perpetual debentures.
registered as to principals only, coupons are 4. Innovative Debt Instruments - In order to
attached. The holder must detach the coupons for improve the attractiveness of fixed income
interest payment and collect them as in the case of securities, namely - bonds and debentures, some
bearer bonds. new features have been added. As a result, a wide
C. Secured Debentures - Debenture which create creates a range of innovative debt securities have emerged
charge on the property of the company is a in India, particularly, after the early nineties.
secured debenture. The charge may be floating or Bonds are debt instruments that are issued by
fixed. The floating charge is not attached to any companies / governments to raise funds for
particular asset of the company. But when the financing their capital requirements. By
company goes into liquidation the charge becomes purchasing a bond, an investor lends money for a
fixed. Fixed chargerge debentures are those where fixed
ed period of time at a predetermined interest
inte
specific asset or group of assets is pledged as (coupon) rate. Bond has fixed face value which is
security. The details of these charges are to be the amount to be returned to the investor upon
mentioned in the trust deed. maturity of the bond. During this period, the
D. Unsecured / Naked Debentures - These are not investors receive a regular payment of interest,
protected through any charge by any property or semi-annually or annually, which is calculated as
assets of the company. They are also known as a certain percentage of the face value and known
naked debentures. Well established and credit as a ‘coupon payment.’ Bonds can be issued at
worthy companies can issue such shares. par, at discount or at premium. Both debentures
E. Redeemable Debentures - When the debentures and bonds mean the same. In Indian parlance,
are redeemable, the company has the right to call debentures are issued by corporate and bonds by
them before maturity. The debentures can be paid government or semi-government
government bodies. But now,
off before maturity, if the company can afford to corporate are also issuing bonds which carry
do so. Redemption can also be brought about by comparatively lower interest rates and preference
in repayment at the time of winding up,

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International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
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comparing to debentures. The government, public presumably lower rate of interest when market
sector units and corporate are the dominant issuers conditions are favorable to redeem such bonds.
in the bond market. Bonds issued by corporate and G. Option Bonds - In this type, the investors have
the Government of India can be traded in the the option to choose between cumulative or non-non
secondary market. The different types of bonds cumulative bonds. In the case of cumulative
are discussed as below: bonds, interest is accumulated and is payable on o
A. Zero Interest Bonds (ZIBs) - Also known as maturity only. In non-cumulative
cumulative type interest is
Zero Coupon
upon Bonds (ZCBs) or Zero Interest paid periodically.
Debentures (ZIDs), the instruments do not carry H. Bonds with Warrants - A warrant allows the
any explicit / coupon rate of interest. They are holder to buy a number of equity shares at a pre-
pre
sold at a discount from their maturity value. The specified price in future. Bonds are issued with
difference between the face value of the bond and warrants to make it more attractive.
the acquisition cost is the gain / return to the I. Floating Rate Bonds (FRBs) - Floating rate
investors. The implicit rate of return / interest on bonds are bonds wherein the interest rate is not
such bonds can be computed by the equation: fixed and is linked to a benchmark rate such as
Acquiring price = Maturity ty (Face) Value / (1+i)n interest on treasury bills, bank rate and maximum
where, i = rate of interest
est per rupee per year and n rate on term deposits. It is typically a certain
= maturity period (years). percentage point higher than the benchmark rate.
B. Deep Discount Bond (DDB) - A Deep Discount The price of FRBs tends to be fairly stable and
Bond is a form of Zero Interest Bond (ZIB). It is close to par value in comparison to fixed interest
issued at a deep / steep discount over its face bonds. They provide protection against inflation
value. It implies that the interest (coupon) rate is risk to investors, particularly in comparison to
far less than the yield to maturity. The DDB interest rates provided by banks and a financial
appreciates to its face value over the maturity institutions.
period. DDBs are being issued by the public J. Secured Premium Notes (SPNs) - The SPN is a
financial institutions in India, namely - IDBI, secured debenture, redeemable at a premium over
SIDBI and so on. the face value / purchase price. It resembles to a
C. Mortgage Bonds - This is the common type of ZIB. There is a lock-in-period
period for SPN, during
bonds issued by the corporate.. Mortgage bonds which no interest is paid. The holder has h the
are secured
red by physical assets of the corporation option to sell the SPN back to the issuing
such as their building or equipment. company, at par, after the lock-in-period.
lock The
D. Convertible Bonds - This type of bond allows the redemption is made in installments. The SPN is a
bond holder to convert their bonds into shares of tradable instrument. Although the SPN is akin to a
stock of the issuing corporation. Conversion ratio ZIB to the extent it has no coupon rate of interest
(number of equity shares in lieu of a convertible (where the interest payment and principal
bond) and the conversion price (determined at the repayment are spread over a period of some
time of conversion) are pre-specified
specified at the time of years), whereas in case of ZIBs the entire payment
bonds issue. is made in lump sum on maturity.
E. Step-Up Bonds - A bond that pays a lower 5. Derivative instruments - Derivative is an
coupon rate for an initial period which, then instrument whose value is derived from the value
increases to a higher coupon rate. of one or more underlying assets which can be
F. Callable and Non-Callable Bonds - If a bond can commodities, precious metals, currency, bonds,
be called (redeemed) prior to maturity, the bond is stocks, stock indices, etc. Derivative instruments
said to be callable. If a bond cannot be called prior in Indian stock exchanges are Index Futures,
to maturity, it is said to be non-callable.
callable. Beginning Stock Futures, Options on Index and Options on
from 1992, when the Industrial Development Individual Stocks. At present on NSE, different
Bank of India issued bonds with call features, Index Futures are Nifty Future, Bank Nifty Future,
several callable bonds have emerged in the and CNX IT Future and different Index Options
country in the recent years. Call provisions are Option on Nifty, Option on Bank Nifty and
provide flexibility to the company to redeem them Option on CNX IT. Besides these, Stock Futures
prematurely. Generally, firms issue bonds at a on specified individual stocks on NSE and an on
those specified stocks on NSE are allowed to

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International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
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trade. A brief description on each type of specified quantity of the underlying asset at the
derivative instruments in Indian market is made as strike price on or before expiration date in case of
under: American style of Option. The seller (one who is
A. Sensex Future and Nifty Future - Sensex Future short Call) however, has the obligation to sell the
in BSE is a financial derivative product enabling underlying asset if the buyer of the Call Option
one to buy or sell underlying Sensex on a future decides to exercise his Option to buy. Example:
date at a price decided by the market forces today. An investor buys One European Call Option of
It is the first
st financial derivative product in India. Infosys
sys at the strike price of Rs. 2,000 at a
The security name used for Sensex Fu Future in BSE premium of Rs. 100. If the market price of Infosys
is BSX. On NSE, the similar type of index index-based on the day of expiry is more than Rs. 2,000, the
future is Nifty Future. The security name and Option will be exercised. The investor will earn
ticker symbol used for Nifty Future is NFUTIDX profits once the share price crosses Rs. 2,100 (,
NIFTY. i.e., strike Price
ice Rs. 2,000 + Premium Rs. 100).
B. Stock Future - Stock Future is a financial Suppose stock price on the expiry date is Rs.
derivative product where the underlying asset is 2,300, the Option will be exercised and the
an individual
idual stock. It is also called E
Equity Future. investor will buy 1 share of Infosys from the seller
This derivative product enables one to buy or sell of the Option at Rs. 2,000 and sell it in the market
the underlying stock on a future date at a price at Rs. 2,300 making a profit
prof of Rs. 200 {(Spot
decided by the market forces today. The price – Strike price) – Premium}. In another
theoretical price of a future
uture contract is sum of the scenario, if at the time of expiry, stock price falls
current spot price and cost of carry.. However, th the below Rs. 2,000, suppose it touches Rs. 1,800, the
actual price of futures contract very much depends buyer of the Call Option will choose not to
upon the demand and supply of the underlying exercise his Option. In this case the investor
inv loses
stock. Generally, the Futures prices are higher the premium paid (i.e., Rs. 100), which shall be
than the spot prices of the underlying stocks. the profit earned by the seller of the Call Option.
Futures Price = Spot price + Cost of Carry. A Put Option gives the holder (buyer/one who is
Cost of Carry is thee interest cost of a similar long Put), the right to sell specified quantity of the
position in cash market and carried to maturity of underlying asset at the strike price on or before the
the Futures contract less any dividend expected till expiry date (in case of American style Option).
the expiry of the contract. Example:: Spot Price of The seller of the Put Option (one who is short Put)
Infosys = Rs. 2000; Interest Rate = 12% p.a. however, has the obligation to buy the underlying
Futures Price of 1 month contractntract = Rs. 2,000 + asset at the strike price if the buyer decides to
Rs. (2,000 x 0.12 x 30/365) = Rs. (2,000+20) = exercise his Option to sell. Example: An investor
Rs. 2,020. buys one European Put Option of HPCL at the
C. Stock Index - It is a financial derivative product strike price of Rs. 300, at a premium of Rs. 25. If
where the underlying asset is the stock index of a the market price of HPCL, on the day of expiry is
particular stock exchange. This financial less than Rs. 300, the Option can be exercised as it
derivative product enables one to buy or sell Call is ‘in the money’.. The investor’s Break Even
Option or Put Option (to be exercised at a future Point (i.e., no profit no loss situation)
situ is Rs. 275
date) on the underlying asset (i.e. Stock Index) at (Strike Price - Premium paid). The investor will
a premium decided by the market forces today. On earn profit if the market et falls below Rs. 275.
NSE, currently among various Stock Index Suppose stock price is Rs. 260, the buyer of the
Options available for trading, Options on Nift Nifty Put Option immediately buys HPCL share in the
and Options on Nifty Junior are very popular. On market @ Rs. 260 and exercises his Option,
BSE, the most commonly used Stock Index selling the HPCL share at Rs. 300 to the Option
Option is Option on Sensex.. A Stock Index writer thus making a net profit of Rs. 15 {(Strike
Option gives an investor the right to buy or sell price – Spot price) – Premium paid}. In another
the value of an index which represents a group of scenario, if at the time of expiry, market price of
stocks. Such Index Options ons are quoted with Strike HPCL is Rs. 320, the buyer of the Put Option will
Price and Premium per Option in Rupees along choose not to exercise his Option to sell as he can
with paise. A Call Option gives the holder sell in the market at a higher rate. In this case the
(buyer/one who is long Call), the right to buy investor loses the premium paid (i.e. Rs. 25),

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International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
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which shall be the profit earned by the seller of the instruments (including securities, non securities
Put Option. and derivatives) and are not subject to the same
D. Swaps - A swap is a derivative contract between regulatory requirements as mutual funds, f
two parties to exchange cash flows in the future including mutual fund requirements to provide
according to a prearranged formula
formula. They can be certain periodic and standardized pricing and
regarded as portfolios of forward contracts. valuation information to investors. Hedge funds
Interest rate swaps and currency swaps are the are sometime called as rich man’s mutual funds.
most popular swap contracts which ar are traded 9. Gold Exchange Trade funds - SEBI (Mutual
over the counters between financial institutions. Funds) Amendment Regulationslations dated January 24,
These contracts are not traded on exchanges. 2006 permitted introduction of Gold Exchange
Retail investors generally do not trade in swaps. Traded Fund schemes by Mutual Fund. Gold
E. Forward contract - A forward contract is an Exchange Traded Fund (GETF) schemes are
Over The Counter (OTC) customized agreement permitted to invest primarily in Gold and Gold
between two parties – a buyer and a seller to related instruments i.e. such instruments having
purchase or sell something at a later date at a price gold as underlying as are specified by SEBI from
agreed upon today. Forward contracts, sometimes time to time.
called forward commitments are very common in 10. Foreign instruments – There are some
everyone life. Any type of contractual agreement instruments which are very much attractive to the
that calls for the future purchase of a good or investors in the global financial markets. These
service at a price agreed upon today and without instruments are denominated in dollars. These
the right of cancellation is a forward contract. instruments are mentioned as follows:
6. Government instruments – The government, A. NRI bonds – NRI bonds are forex deposits raised
either central government, state government or from non-resident
resident Indians at attractive rates for 3-
3
local governments, s, such as, municipalities, 5 years, with some lock--in and an implicit RBI
metropolitan
ropolitan authorities, port trusts, development guarantee. RBI issues NRI bonds to support the
trusts, state
te electricity boards, public sector rupee and offset the slowdown in foreign portfolio
undertakings and other government agencies, viz. investment (FPI) flows amid rising oil prices.
prices The
IDBI, SFCs, NABARD, SIDCs, etc. raises long FPI inflows to India will be impacted by Chinese
term funds by issuing bonds. These bonds do not firms listing in global benchmark indices like
carry any risk and they are as good as government MSCI. According to a Bank of America Merrill
guarantees in regard to the payment of interest as Lynch (BofAML) report, the listing in benchmark
well as repayment of principal money. These are indices will shift up to USD 100 billion to China
also known as gilt-edged bonds. market by 2019.
7. Fixed Deposit - Fixed Deposit is that kind of bank B. ADR / GDR - Indian Capital Market was
account, where the amount of deposit is fixed for a dominated mostly by Indian investors till early
specified period of time. All Commercial banks part of the 1990s. Since ce 1992, being integrated
are given these opportunities to their customers with global market,
arket, Indian Companies have been
for opening a fixed account in their bank. In a raising funds not only from the local markets and
Fixed account, the amount unt of deposit is fixed, institutions but also from foreign markets as well
which means we cannot withdraw an unlimited in the form of ADRs (American Depository
amount from this account; therefore it is also Receipts) and GDRs (Global Depository
called a Fixed Deposit. If an account holder wants Receipts). These two instruments are collectively
to withdraw a small amount of money from their known as Euro Issues. This gives Indian
account, then he will require closing of tthe fixed Companies access to low cost funds but they have
deposit account. The main purpose of account to adopt international accounting practices in
holders to open this account is to earn interest order to approach the foreign markets.
money from their actual money, which is given by C. IDRs – Indian Depository tory Receipts (IDRs) are the
the banks during a specified period of time. instruments denominated in Indian rupees in the
8. Hedge Fund - Hedge funds including fund of form of depository receipts against the underlying
funds are unregistered private investment equity of issuing company enabling foreign
partnership, funds or pools that may invest and companies to raise funds from the Indian market.
trade in many different markets, strategies and It is a positive step of government of India to

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Oct 2018 Page: 465
International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
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integrate Indian capital market with the global 5. Vashisht, A. K. & Gupta, R. K. (2005),
capital markets in the era of globalization of Investment Management and Stock Market, Deep
economy. & Deep Publication Pvt. Ltd. New Delhi
Articles in Journals:
CONCLUSION 1. Vashistha, S. D., The Secondary Capital Market:
Capital market referss to a type of financial market
Some Important Aspects, The Indian Journal of
where individuals and institutions are trading in Commerce, Conference Issue (2001),
(2001) Vol. 54 No.
financial securities issued by governments and
4
companies from time to time. Here the buyers and
sellers of securities can enter to purchase and sell all 2. Vijaysingh Thakur Devendrasingh, Emerging
types of securities like shares, debentures, bonds, etc. Issues in Capital Market, The Indian Journal of
These capital market instruments play important role Commerce, Conference
ference Issue (2001),
(2001) Vol. 54 No.
in Indian economy
nomy under the present scenario of 4
globalization and liberalization. Many reform 3. Thakur, P. C. and J. Raghakardar Pal Singh,
measures haveve been taken by the government of India Reflections on the Changing Scenario of the
after 1990s. Presently, Indian capital market is not Indian Stock Exchanges, The Indian Journal of
only for Indian investors. It facilitates the Commerce, Conference Issue (2001),
(2001) Vol. 54 No.
internationalization of Indian economy by linking it 4
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@ IJTSRD | Available Online @ www.ijtsrd.com | Volume – 2 | Issue – 6 | Sep-Oct


Oct 2018 Page: 466