1) Equity Shares: They are also termed as ordinary shares or common stock. One might understand both the terms ‘shares’ and ‘stocks’ as the same but there is some basic difference that is involved. Shares denote the small units of equal denomination constituting the share capital of the company. On the other hand, stock is the aggregate of fully paid shares of the company that is taken together. In other words, it is the collection of the shares. A stock has a value and represents as to what quantum it contains. Thus, stock can be further divided into fractions but again the denomination will be in terms of money and not in terms of number of shares.
2) Preference Shares: Preference shares are like a hybrid instrument as they possess the features of a bond as well as that of an equity share. Unlike bonds, the preference shareholders have right to receive dividend even if there are no profits or less profits. Also in the event of liquidation of a company, their money is paid in preference to the equity shares. And unlike equity shares, they possess the characteristic of perpetual liability. Only the rate of dividend is fixed, but it is at the discretion of the Board of Directors to pay dividend or not.
3) Debentures: They constitute a type of debt payment and a substitute to the shares. Basically, they are issued by the private sector companies for raising desired funds from the general public. Under this, the money is borrowed with a promise of redemption on a certain fixed date and with the promise of periodic payment of interest. In India, Debentures are treated like bonds only but generally the bonds are issued by public sector companies
4) Derivatives: These are like financial instruments whose value depends on something else, like stocks, commodities, or even interest rates. Derivatives are often used for protecting against risks or making speculative bets. Derivatives are the instruments whose value is determine from the underlying instruments.
5) Sweat Equity: Sweat equity shares are equity shares issued by a company to its employees or directors at a discount or as a consideration other than cash for providing know-how or making available rights in the nature of intellectual property or value additions, by whatever name called. Sweat equity is used to describe the non-financial investment that employees contribute to the development of a project such as a new venture. For example, sweat equity is offered to the founders of the company, as well as advisors and board members.
6) Warrant: A warrant is a bearer document of title to buy a specified number of equity shares at a specified price. Usually, warrants can be exercised over a number of years. The life periods of warrants are long. Warrants are generally offered in the form of the bond or preferred stock. Bonds may bear low interest rate but the warrants offered along with them helps the investor to enjoy the equity appreciation value. Warrants are detachable. The investor can sell the warrants separately and they are traded in the market.
7) Secured Premium Notes (SPNs): SPN is a secured debenture redeemable at premium issued along with a detachable warrant, redeemable after a notice period, i.e. four to seven years. The warrants attached to SPN gives the holder the right to apply and get allotted equity shares; provided the SPN is fully paid.
Types of Securities in Indian Capital Market.
