In the stock market, all the shares, stocks, bonds, debentures are termed as securities. It is a financial term which is most important in the stock market. This post discusses the securities with their market and types.
What is Security?
Security is a financial instrument that holds a monetary value and issued to raise the funds for a company, corporate or government. It is a medium of exchange between two entities. Securities are purchased by those who have money and want to invest their money. It lets the investor exchanging their money into financial assets which will provide a return on investment. A security may be shares, stocks, bonds, debentures of a company, corporate or government. It may also be a unit issued by any investment scheme such as a mutual fund.
Security Market
The security market is a market-place which conducts the flow of capital from those who want to invest to those who require investment. It enables the transfer of financial assets from entities having it in excess to the entities who have a productive requirement. It offers a channel for exchange of savings and investments.
A security market comprises the following:-
- Borrowers: Entities who sell the securities.
- Investors: Entities who buy the security.
- Intermediaries: Entities who facilitate the transfer of funds and securities.
- Regulators: Institutions who enforces the rules and regulations.
Types of Securities
The securities in the Indian market are categorized broadly into three categories:-
- Equity Securities: These types of securities are shares of a company into which the fractional ownership of the company is divided among investors. The shareholders bear the risk of companies performance and benefitted from its profit. These securities are issued by the company and individuals and institutions invest into it. This investment is made by the investors either directly or through the stock exchange. The investments in equity shares are regulated by the Security and Exchange Board of India (SEBI).
- Debt Securities: Bonds, debentures, Notes are termed as debt security. These are issued by companies, corporates, and governments when they are in need of capital. These instruments are issued in view of long-term debt. Bonds are supported by the collaterals while debentures may or may not be supported by collaterals. In some issues, debentures are converted into equity shares of the company.
- Derivatives: This security is a contract which derives the value from the performance of the equity. The derivative may be an asset or index.
