Introduction to Financial

Instruments and Securities

Lecture 3
Features of Equity Shares
➢Claim on Income

➢Claim on Assets

➢Right to Control

➢Voting Rights

➢Pre emptive rights

➢Limited Liability

Advantages: Permanent Capital, Increases the borrowing base, Dividend

Payment discretion

Disadvantages: More costly, More risky, Earnings dilution, Ownership

dilution

Types of equity shares: Blue chip, Growth, Income, Cyclical, Defensive,

Speculative
Features of Preference Shares

✓Hybrid Security: Features of both equity shares and debentures

✓Claim on assets and income

✓Fixed Dividend

✓Cumulative dividends

✓Redemption

✓Sinking Fund

✓Call feature

✓Participation feature

✓Voting Rights

✓Convertibility
Advantages: Riskless leverage advantage, Dividend
postponability, Fixed Dividend, Limited Voting Rights

Disadvantages: Non deductibility of dividends,

Commitment to pay dividends
Debentures/Bonds:

❖Difference between Debentures and Bonds

❖Interest Rate/Coupon Rate

❖Debentures at premium, discount and par

❖Redemption

❖Sinking fund

❖Buy back (Call feature)

❖Indenture/Debenture Trust deed

❖Security: Secured and Unsecured, Naked (Junk Bonds)

❖Yield: Current Yield and Yield to maturity

❖Convertibility: NCD. PCD and FCD

Zero Coupon Bond/ Deep Discount Bond

Debt Securities issued by Central Government {Government Securities (G-

secs)}

Advantages: Less Costly, No ownership dilution, Fixed payment of Interest

Disadvantages: Obligatory payment, Financial Risk, Cash outflows, Restrictive

covenants

Classification of Mutual Funds: Equity, Debt, Balanced, ELSS, ULIP, Money

market mutual funds.
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