SECURITIES: TYPES, FEATURES

AND CONCEPTS OF ASSET

ALLOCATION
AND INVESTING
 Securities available in the securities market
• Securities markets enable investors to deploy
their surplus funds in investment instruments
that are pre-defined for their features, are issued
under regulatory supervision, and in most cases
are liquid in the secondary markets
• There are two broad types of securities that are
issued by seekers of capital from investors
1. Equity
2. Debt
 Equity capital vs Debt Capital
• Equity capital is available for the company to use
as long as it is needed; debt capital will have to
be returned after the specified time
• Equity investors do not enjoy any fixed return or
return of principal invested; debt investors earn
a fixed rate of interest and return of principal at
maturity
• Equity investors are owners of the business; debt
investors are lenders to the business
• Equity investors participate in the management
of the business; debt investors do not
 Asset allocation
• Choosing between equity and debt is a trade-off. Investors
desiring lower risk, and willing to accept a lower stable
return choose debt; if they seek a higher return, they may
not be able to earn it without taking on the additional risk
of the equity investment.
• Most investors tend to allocate their capital between
these two choices, depending on their expected return,
their investing time period, their risk appetite and their
needs.
• This process of distributing their investible surplus
between equity and debt is called asset allocation
 Other Securities

• Hybrid securities:

• Commodities:

• Derivatives:

• Mutual funds:

• Structured products:

• Distressed securities:
 Choice between Equity and Debt
Financing for Issuers
• The implications of raising equity or debt capital
are evaluated by the business before the decision
is made. The key factors
• Ability to pay periodic interest:
• Willingness to dilute ownership in the company:
• Ability to give collateral as security:
• Time period for which capital is required: