The definition of “Securities” as per the Securities Contracts Regulation Act (SCRA), 1956, includes instruments such as shares, bond, stocks or other marketable securities of similar nature in or of any incorporate company or body corporate, government securities, derivatives of securities, unites of collective investment scheme, interest and rights in securities, security receipt or any other instrument so declared by the Central Government.
1. Shares
2. Government Securities
3. Derivative
4. Unites of Mutual Fund etc. are some of the securities investors in the securities market can invest in.
Total equity capital of a company is divided into equal unites of small denominations, each called a share. The holders of such shares are members of the company and have voting rights. Thus share represent the form of fractional ownership in a company. A stock is represented by a stock certificate. In today’s computer age, you won’t actually get to see this document because your broker keeps these records electronically, and is known as Dematerialised share commonly known as “DEMAT” shares. Whether you say shares, equity or stocks it all means the same thing.
Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In Indian Securities Market, the term “Bond” is used for debt instruments issued by the Central and State governments and public sector organization and the term ‘Debenture’ is used for instruments issued by private corporate sector.
The key differences between equity and debt are as follows;
1. Debt investors are entitles to a contractual set of cash flows (interest and principal) whereas equity investors have a claim on the residual cash flows of the firm after it has satisfied all other claims and liabilities.
2. Interest paid to debt investors represent a tax-deductible expense whereas dividend paid to equity investor has to come out of profit after tax.
3. Debt has a fixed maturity whereas equity ordinarily has an infinite life.
4. Equity investors enjoy the right to control the affairs of the firm whereas debt investors play a passive role-of course’ they often impose certain restrictions on the way the firm is run to protect their interests.
Securities Market is a place where buyers and sellers of securities can enter into transaction to purchase and sell shares, bonds, debentures etc. Further it performs an important role of enabling corporate, entrepreneurs to rise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporates) is most efficiently achieved through the securities market. Stated formally, securities markets provide channels for reallocation of saving to investment and entrepreneurship. Saving are linked to investment by a variety of intermediaries, through a range of financial products called ‘Securities’.
The absence of conditions of perfect competition in the securities market makes the role of the Regulator extremely important. The regulator ensures that the market participants behave in a desired manner so that securities market continues to be major source of finance for corporate and government and the interest of investors are protected. The responsibility for regulating the securities market is shared by Department of Economic Affairs (DEA), Department of Company Affairs (DCA) Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act 1992. SEBI Act 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with Statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities in addition to all intermediaries and persons associated with securities market. The Securities Exchange board of India has been entrusted with the responsibilities of dealing with various matters relating to the capital market.
1. Regulate the business in the stock exchange and any other securities markets.
2. Register and regulate the capital market intermediaries (brokers, merchant bankers, portfolio managers.)
3. Register and regulate the working of Mutual Funds.
4. Promote and regulate self regulatory organizations.
5. Prevent fraudulent and unfair trade in securities markets.
6. Promote investor education training of intermediaries of securities markets.
7. Prohibit insider trading in securities.
8. Regulate substantial acquisition of shares and takeover of companies.
9. Perform such other function as may be prescribed.
The securities market essentially has three categories of participants, namely, the issuers of securities, investors in securities and the intermediaries, such as merchant bankers, brokers etc. While the corporate and government raise resources from the securities market to meet their obligations, it is households that invest their savings in the securities market.
It is advisable to conduct transactions through a SEBI registered intermediary, as they are accountable for their activities. The list of registered intermediaries is available with exchange, industry associations etc.
The securities market has two interdependent segments. The primary (I.P.O) market and the secondary market. The primary market provides the channel for sale of new securities while the secondary market deals in securities previously issued.
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Thank you.
Nice very detailed information
Good to know about securities waiting for next blog