Assignment

of capital
market
Submitted by: submitted to:
Anshul jain(02) mrs tripti garg
Bba (gen) -B

Remarks: very well done Grade : A+

Teacher’s signature:
Question: what are the various types of instruments traded in debt
market?

What is the “Debt market”

The bond market – also called the debt market or credit market – is a financial market in
which the participants are provided with the issuance and trading of debt securities. The
bond market primarily includes government-issued securities and corporate debt
securities, facilitating the transfer of capital from savers to the issuers or organizations
requiring capital for government projects, business expansions and ongoing operations.

Features of debt
market:
The debt market has a number of characteristics such as:

1. Debt markets involves buying and selling of debt instruments

2. Government or corporates issues the debt instruments in debt market
3. It is done to raise funds
4. Some of debt instruments are -
a. Bonds
b. Mortgages
c. Debentures
d. Leases
5. 2 types of debt market
a. Government securities market - issued by RBI to finance fiscal deficit of government
b. Corporate bond market
6. Lender - borrower relationship
7. Less risky investment for lenders
8. Less volatile than stock market
9. Lender will get a fixed return with interest
10. Bond holder won't get ownership or share in profits
11. Incase of any financial trouble, lenders will be paid first before meeting any other
expenses.

Importance of debt
market:
1. share in GDP: Indian debt market accounts for approximately 30 percent of the GDP

2. saftery: The debt instruments are an important medium for risk free investments. About 60 to 65
percent of an average Indian’s savings are held in debt instruments.

3.Efficient allocation of resources : The debt market mobilizes and allocate the resources in the
economy, financing the development activities, facilitating liquidity management.

4.Reducing pressure on institutional financing: A well developed debt market helps in reducing the
pressure on institutional financing by providing greater funding avenues.

5.Financing the development activities of the government : The debt market provides funds to the
government for the development and infrastructure projects.
6. Transmission of monetary policy: The debt market is important from the point of view of monetary
policy. It also creates an interface between monetary and fiscal policy which has now assumed greater
importance in the management of economy.

Types of instruments
traded in debt market :
1.Government securities market(instruments: Zero coupon bonds, Treasury bill, Floating rate bonds)

2.Public sector bonds(instruments: Debentures, Commercial papers, Deep discount bonds, Government
guaranteed bonds )

3.Private sector bonds(instruments:Debentures,Commercial papers, Floating rate bonds, Zero

coupon bonds, certificate of deposits)

These have been explained in brief as under:

Treasury Bill
1.A treasury bill is a promissory note issued by the govt. for a specified period usually less than a year.

2.The govt. promises to pay the amount mentioned in the treasury bill to the bearer of the instrument
on due date.

3.It is an instrument issued by RBI on behalf of the central government to meet its short term
requirements of funds.

4.These are available for a minimum amount of 25000 and in multiples thereof.

5.They don’t carry any interest and are issued at discounted redeemed at par. The rate of discount is
fixed by RBI from time to time.

Zero coupon bonds

1.Zero coupon bonds are issued by central government and corporates in the private corporate segment
of the debt market.

2. zero coupon bonds don’t carry any coupon rate of interest.

3.such bonds are sold at heavy discount of their face value.

Floating rate bonds

1.These are issued by central government and state government in government securities market
segments and private corporate segment of the debt market.

2.These are those bonds whose interest amount fluctuate in step with the market interest rate.

3.In India SBI was the first to introduce bonds with floating rates for retail investors.

Deep discount bonds

1.Deep discount bonds are also of the nature of zero coupon bonds.

2. They are issued at heavy discount and repayable at face value.

3. These are issued by PSU bond market segment of the debt market.

4. At present these are being issued by public financial institutions in India namely IDBI, SIDBI etc.

5. In 1992,IDBI issued deep discount bonds at Rs 2700 which was payable after 25 years at the face value
of Rs 100000.

Commercial papers
1. It is an instrument issued by large creditworthy and financially strong companies to raise short
term funds at lower rate of interest then market rate.
2. It has a maturity period of 15days to 1 year. These are short term, unsecured and negotiable
instrument .
3. These are transferable by endorsement and delivery.
4. CP are issued as per government guidelines.
5. It is an alternative to bank borrowing.
6. CP is issued by PSU and private corporate bond market segment of the debt market.

Debentures

1. Debentures are issued by the PSU and private corporate bond market segment of the debt
market.
 2. A debenture is a written acknowledgement of debt taken by the company. These are issued
under the seal of the company and are secured by charge on assets of the company.
3. Debenture holders are long term creditors of the company.
4. As a secured instrument it is a promise to pay interest and repay principal at stipulated times.

Government guaranteed bonds

1. These bonds are issued by PSU bond market segment of the debt market.
2. Such bonds have government backing as regards to payment of interest and repayment of
principal amount.
3. Government agencies issues such type of bonds.

Certificate of deposits

1. These are issued by banks and financial institutions in the private sector bond market segment of
the debt market.
2. These help to mobilize large amount of money for short period
3. These are issued for a period between 91days to 1 year and are freely transferable by
endorsement.
4. These can be issued to individuals corporations and companies during the period of tight
liquidity.
5. The minimum size of an issue to a single investor is Rs 10lakhs and in multiples of 500000
thereafter.

Question : Briefly explain depository system in India.

Meaning of depository system:
It is a system whereby the transfer and settlement of scrips take place not through the
traditional method of transfer deeds and physical delivery of scrips but through the modern
system of effecting transfer of ownership of securities by means of book entry on the ledgers
or the depository without the physical movement of scrip’s.

The new system, thus, eliminates paper work, facilitates automatic and transparent trading
in scrips, shortens the settlement period and ultimately contributes to the liquidity of
investment in securities. This system is also known as ‘scripless trading system’.
There are essentially four players in the
depository system:
(i) The Depository

(ii) The Participant

(iii) The Beneficial Owner, and

(iv) The Issuer.

(i) The Depository:

A depository is a firm wherein the securities of an investor are held in electronic form and
who carries out the transactions of securities by means of book entry. The depository acts as
a defecto owner of the securities lodged with it for the limited purpose of transfer of
ownership. It functions as a custodian of securities of its clients.

The name of the depository appears in the records the issuer as the registered owner of
securities.

At present there are two depositories in India:

(a) National Securities Depository Ltd. (NSDL), and

(b) Central Depository Services (India) Ltd. (CDSL).

National Securities Depository Limited which commenced operations during

November 1996 was promoted by IDBI, UTI and National Stock Exchange (NSE). Central
Depository Services (India) Limited commenced operations during February 1999. It
was promoted by Mumbai Stock Exchange in association with Bank of Baroda, Bank of
India, State Bank of India and HDFC Bank.

(ii) The Participant:

A participant is an agent of the depository. He functions as a bridge between the depository
and the beneficial owners. He maintains the ownership records of every beneficial owner in
book entry form. Both the depository and the participant have to be registered with the
Securities and Exchange Board of India.

SEBI grants necessary approval for the same only on the satisfaction of the condition that
adequate systems and safeguards are available in such companies in order to ensure against
manipulation of records and transactions.

(iii) The Beneficial Owner:

Beneficial owner means a person whose name is recorded as such with a depository. A
beneficial owner is the real owner of the securities who has lodged his securities with the
depository in the form of book entry. He has all the rights and liabilities associated with the
securities.

(iv) The Issuer:

The issuer is the company which issues the security. It maintains a register for recording the
names of the registered owners of securities, the depositories. These issuers send a list of
shareholders, who opt for the depository system, to the depositories.

Facilities offered by depository

system :
The following are some of important facilities offered by depository system:
(a) Dematerialisation.

(b) Dematerialisation.

(c) Electronic settlement of trade.

(d) Nomination facility.

(e) Electronic credit of securities allotted in public, rights and bonus issue.

(f) Pledging or hypothecation of dematerialised securities.

(g) Freezing of demat accounts.

(h) Stock lending/borrowing facilities, etc.

Advantages of depository
system:
The introduction of the depository system, it is claimed, would take away many of the
ailments facing the present system, make the trading in scrips foolproof, would serve as a
panacea and would ultimately contribute to the emergence of a highly efficient capital
market. The system is expected to offer the much awaited custodial services to Indian and
foreign investors together.
It is likely to bring about the following benefits to various investors, issuing
companies as well as the nation:
a. Reduction in paper work.

b. Elimination of risks associated with physical scrips such as theft, forgery, multination,
loss of share certificates etc.

c. Elimination of bad delivers.

d. Increased liquidity of scrips through speedy settlement and reduction in delays in

registration.

e. Low transaction costs for purchase and sale of securities compared to physical mode.

f. No stamp duty on transfer of securities.

g. Facilities the issuer companies to update the information regarding shareholders and to
communicate with them in better ways.

h. Attract foreign investors and promoting foreign investment.

i. Emergence of healthy and efficient capital market.

j. Greater opportunity for the development of sophisticated custodial services etc.

Depository process:
There are four parties in demat transactions the customer, the depository participants, the depository
and the share registrar and transfer agent. Following process takes place in this regard. :

1.Account opening : An investor who wants to avail Dematerialisation will have to open an account
with depository through depository participant(DP).The DP may be a custodian, a bank, or a broker with
minimum net worth of Rs one crore.

2.Dematerialisation: The investor has to make an application to the DP for Dematerialisation of his
holdings of securities. The application is made in a Dematerialisation request from (DRF). The DP, within
seen days, forward the DRF along with the security certificates to the issuer or its registrar and transfer
agent after registering the request with the depository.
3.Rematerialisation: is the conversion of demat form into physical certificates. An investor can make
request to withdraw his security balance with the depository through DP. DP, after receiving the request
Will forward it to the depository.

4.Distribution of dividend: A company or its registrar and transfer agent shall inform the depository
about the redemption or maturity of security, book closing, and call money from time to time. The
depository then prepare the list of holdings of the client. The company will then distribute the dividend
directly to the investors on the basis of the list provided by the depository.

5.Closing an account : An investor can close his account if no balances are outstanding to his credit in
the account. An investor who wants to close his account shall submit an application in this regard to the
depository participant.

Question : Difference between Demat share and physical share.

Difference Between Demat and Trading Account

Dematerialization is nothing but paperless trading, that has been introduced in a

few years ago. In this process, the physical certificates are transformed into the
electronic one. For this purpose demat account is used to hold securities in
dematerialised form. It is often misconstrued with a trading account which
acts as an intermediary between the demat account and the saving bank account.

For investing in securities in an stock exchange, there is certain requirement

which must be complied with. One such requirement is that an investor must
possess a demat account and trading account.

Definition of Demat Account:

Demat expands to Dematerialisation, which refers to a process of converting
physical paper certificates, of securities issued to an investor into an equal
number of shares in computerised format. After the conversion of the securities,
they are transferred to the investor’s demat account.

According to Depository Act, 1996, Securities and Exchange Board of India has
made it mandatory for the investors to have a Demat Account, to undertake a
transaction in the financial market. So the investor opens the account when he
registers himself with the stock broker. There are several merits of a Demat
account which are:

 Immediate credit of the bonus/right issue to the shareholder’s account.

 Risk of loss, forgery and theft do not exist.
 Low transaction cost.
 No stamp duty is paid.

Definition of Trading Account:

The term trading account refers to an account which facilitates the investor to
buy and sell securities. In this account, the securities are deposited with the
investment broker for trading purposes.

The account acts as a bridge between the saving bank account and Demat account
of the account holder. Let’s understand, how these three accounts work: Suppose
you have stock of A Ltd. in your demat account, and you want to buy stock of B
Ltd. So, for this purpose, you need to transfer money from your saving bank
account to your trading account. Now, you can buy shares of B Ltd. either from
the stock market or a trader by transferring money to the seller’s trading account.
Shares of B Ltd. are then deposited to your demat account linked to your trading
account.

In the same way, if you want to sell the stock of A Ltd. you need to take back your
stock from a demat account and transfer it to the trading account. After that, the
shares are sold in the stock market and the money earned is transferred to your
savings account.

In this article, we’ve made an attempt to clarify the difference between demat
account and trading account.

Content: Demat Account Vs Trading Account

Comparison Chart
BASIS FOR DEMAT TRADING
COMPARISON ACCOUNT ACCOUNT

Meaning Demat Trading

account is account is
an account an account
that allows through
the account which the
holder account
(investor) holder
to store places an
shares and order for
securities in trading in
an securities.
electronic
form.

Approval of Mandatory Not

SEBI and required
NSDL for
opening
account

Transaction The The

account is account is
 BASIS FOR DEMAT TRADING
COMPARISON ACCOUNT ACCOUNT

used for mainly used

holding for the
securities purposes of
and not for transaction
transaction of
purposes. securities.

Annual The Not paid.

Maintenance account
Charges holder
needs to
pay AMC
charges.

Suitable for Those who Derivative

like to segment
invest in traders,
the stock especially
market and who deal in
store shares cash
in segment
electronic
form.
THE END