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SECURITIES

Definition:According to the Securities Contract Regulation Act 1956, securities include shares, scrip's, stocks, bonds, debentures and other marketable like securities of any incorporated company or other body corporate, or government.

Classification of Securities

On the basis of return

Source of Issue

Fixed income securities e.g. bonds, debentures and preference shares Variable income securities e.g. Equities

Government Semi-government Corporate

EQUITY SHARES

The share capital of a company is divided into number of small units of equal value is termed as SHARES
SHARE CERTIFICATE is a certificate under common seal of the company specifying the number of shares held by any member. Various forms of Equity shares

Sweat Equity

Non-voting share

Right shares & Bonus shares

Rights according to section 85 (2) of the Companies Act 1956 :Rights to..

vote at the General body meetings of the company. control the management of the company. share the profits in the firms of dividend & bonus shares. during winding up of the company pre-emption in the issue of new capital. suit if there is any discrepancies in the rights set aside.

receive a copy of the statutory report, copies of annual accounts


along with audited reports.

approach central government to call an annual meeting if the

company fails to call such meetings

Advantages of Equity share holders

Equity share holder of a limited company is liable to the companys debts only to the extend of the share in the paid up capital
Main advantages are

Capital appreciation Limited liability Free tradeabity Tax advantages Hedge against inflation

SWEAT EQUITY

New instrument came in force from 1998 with a newly inserted section 79A of the Companies Act 1956.
Sweat equities can be issued ..

At a discount to employees and directors As a consideration other than cash for contributions

NON-VOTING SHARES

Came in force in 1994 under board guidelines

Special Features

No voting rights to the shareholders Carry additional dividends Right to participate in the bonus issue Maximum 25% of voting stock can be issued 20% more dividend Automatic voting rights if dividend not paid for 2 years

RIGHT SHARES

New Shares issued to the existing share holders as a matter of legal rights.
Regulated under the provisions of Companies Act & SEBI

Time period for issue of rights shares. Can be forfeited by the share holders through a special resolution. Renounce in the favor of shareholders nominee. May be partly paid. Minimum subscription limit is prescribed.

BONUS SHARES

Indication of higher future profits. Main aim to capitalize the free reserves

Conditions:

Issued only to existing share holders Fully paid-up shareholders Distributed in addition to cash dividend Issued without any payment of cash

PREFERENCE SHARES

Resembles features of bonds & equity. No voting rights Dividends paid at the discretion of the Board of Directors.

Forms of Preference shares:

Cumulative preference shares Non- cumulative preference shares Convertible preference shares as quasi-equity shares Redeemable preference shares Irredeemable preference shares

DEBENTURES

According to Companies Act 1956 Debenture includes debenture stock, bonds and any other securities of company, whether constituting a charge on the assets of the company or not.
Characteristics:

Certificate of indebtedness specifying date of redemption & interest rate Fixed rate of interest / coupon rate Redemption (creation of sinking fund) Indenture trust deed between the company & debenture trustee

Types of debentures

Classified on the basis of Security & convertibility


Secured or Unsecured (property involvement) Fully convertible carries low interest rate Partly convertible Non-convertible

BONDS

Long term debt instrument ,promises to pay a fixed annual sum as interest for specified period of time
Features:

Face value, issued at par or discount


Fixed / floating interest rate Specified maturity date Stated redemption value Traded in the stock market

Types of Bonds

Secured bonds & unsecured bonds Perpetual bonds & redeemable bonds Fixed interest rate bonds & floating interest rate bonds Deep discount bonds issued by IDBI & ICICI Capital indexed bonds Zero coupon bonds traced in U.S security market

Zero coupon bonds

E.g.
Present value=Face value of the bond (1+R)n

A bond matures in 20 years time with the face value of Rs.50,000 would be sold for Rs.5185 to give a return of 12 %.

WARRANTS
Is a bearer document of title to buy specified number of equity shares at a specified price.
Share Warrants Issued by Public Ltd. Co. Need for provision in the Articles of Association Should be approved by central government Transfer of share warrants requires no registration Share warrants are issued to fully paid up shares Considered as a negotiable instrument Share certificate Issued by Public & Private Cos. Not required Not needed Transfer completes only if it is registered Same Not considered like that

INVESTMENT INFORMATION

International Affairs
National Affairs Industry information

Company information
Stock market information

Investment Avenues
Financial Securities

Traditional non-security investments

Negotiable Securities
Non-negotiable Securities

Antiques

Investment Avenues Mutual Funds Art

Real assets

Real Estate

Negotiable Securities

Variable income Securities

Fixed income Securities

Equity Shares

i. ii. iii. iv. v.

Growth shares Income shares Defensive shares Cyclical shares Speculative shares

Preference shares Debentures Bonds Post-office Savings Certificates Govt. securities (gilt edged) Money market securities

i. Treasury bills ii. Commercial Papers iii. Certificate of deposits

Non-Negotiable Securities

Deposits

Tax sheltered Savings schemes

Life insurance

Bank deposits Post office deposits NBFC deposits

Public Provident Fund scheme National savings scheme National savings certificates.

Mutual Fund

Open ended schemes

Close ended schemes

1. 2. 3. 4. 5. 6.

Growth schemes Income schemes Balanced schemes Money market schemes Tax savings schemes Index schemes

REAL ASSETS (gold & silver)

REAL ESTATE

OTHERS

ARTS

ANTIQUES

Investment Process

Investment policy

Analysis

Valuation

Portfolio construction

Portfolio Evaluation

Investible funds Objectives Knowledge

Market
Industry Company

Intrinsic value (book value of shares)


Future value

Diversification
i. Debt& equity diversification

Appraisal
Revision

ii. Industry diversification iii. Company diversification Selection & Allocation