Professional Documents
Culture Documents
INSTRUMENTS
Dr (Prof) Sandeep Parmar
CONTENT LAYOUT
• INTRODUCTION
• INTRUMENTS TRADED IN MONEY MARKET
• INTRUMENTS TRADED IN CAPITAL MARKET
INDIAN FINANCIAL SYSTEM
FINANCIAL MARKET
Financial Markets are the centers or arrangements that provide
facilities for buying and selling of financial claims.
FINANCIAL MARKET
• TREASURY BILLS
• CALL/NOTICE MONEY
• COMMERCIAL PAPER
• CERTIFICATE OF DEPOSITS
• COMMERCIAL BILLS
TREASURY BILLS
II. Rate of dividend is fixed. II. Rate of dividend is decided by Rate of Dividend
Board of Directors, year to year
depending on profits.
III. Preference share may be III. Equity shares are not Convertibility
converted to equity shares, if convertible.
the terms of issue provide so.
DIFFERENCE
PREFERENCE SHARE EQUITY SHARE BASIS OF DIFFERENCE
IV. Preference shareholders do not IV. Equityshareholders have the right Participation in
have the right to participate in to participate in the management Management
the management of the of the company.
company.
V. Preference shareholders do not Voting Right
carry the voting right. They can V. Equityshareholders have voting
only vote in special rights in all circumstances.
circumstances.
VI. At the time of winding up of the
VI. Onwinding up, equity share Refund of
company, preference share
capital is paid before the capital is paid after preference Capital
payment of equity share capital. share capital is paid.
DEBENTURE
• The word ‘debenture’ has been derived from a Latin word ‘debere’ which
means to borrow.
• Debenture is a written instrument acknowledging a debt under the common
seal of the company.
• It contains a contract for repayment of principal after a specified period or at
intervals or at the option of the company and for payment of interest at a
fixed rate payable usually either half-yearly or yearly on fixed dates.
• According, to Section 2(12) of The Companies Act,1956 ‘Debenture’
includes Debenture Inventory, Bonds and any other securities of a
company whether constituting a charge on the assets of the company or not.
TYPES OF DEBENTURES
On the basis of CONVERTIBILITY
• Corporate Bonds
• Municipal Bonds
• Zero Coupon Bonds
CORPORATE BONDS
• Corporate bonds are debt securities issued by private and
public corporations.
• Companies issue corporate bonds to raise money for a variety of purposes,
such as building a new plant, purchasing equipment, or growing the business.
• When one buys a corporate bond, one lends money to the "issuer," the
company that issued the bond.
• In exchange, the company promises to return the money, also known as
"principal," on a specified maturity date. Until that date, the company
usually pays you a stated rate of interest, generally semi-annually.
MUNICIPAL BOND
• Municipal Bond is a bond issued by a state, U.S. territory, city, local
government, or their agencies.
• Interest income received by holders of municipal bonds is often exempt
from the federal income tax and from the income tax of the state in which
they are issued, although municipal bonds issued for certain purposes may
not be tax exempt.
• This concept is new in India.
• The first municipal bonds in India were issued in 1995, while the first state-
guaranteed bonds were launched by the Bangalore Municipal
Corporation (Bruhat Bengaluru Mahanagara Palike) in 1997.
• In 2010, the Greater Visakhapatnam Municipal Corporation issued bonds
worth Rs. 30 lakhs.
MUNICIPAL BOND
• In November 2013, the Associated Chambers of Commerce and Industry
had
written to the Reserve Bank of India to allow municipal bonds to be traded.
• In December, SEBI had set up a 20-member committee to develop a market for
such bonds.
• Experts say India’s municipal bond market faces various hurdles, including
low ratings, reluctant investors and unclear regulation.
• Municipalities in metros and other large cities are reluctant to turn to the
debt market, as these are flush with cash.
• Municipalities in tier-III and tier–IV cities, which need capital, don’t have access
to bond markets and rely on Housing and Urban Development Corporation for
funding.
ZERO COUPON BOND