Understanding the securities contracts in India

Security is a financial instrument, or you can say any financial asset that can be traded in the market. The nature of what can and can’t be called security generally depends on the jurisdiction in which the assets are being traded. These are not the Tender Government issues like what contractors take up as Online Tender and work upon but these are governed by SEBI, a body formed by the government to keep a close look at any irregularities happening in the share market. Many people confuse securities as a Security Tender but these securities contracts have nothing to do with the tenders so there is no filling up the forms online and bidding for the tenders. The intricacies of these securities contracts are explained in this article.

Types of securities

Now we have understood the meaning and definition of securities, let us now discuss the type of securities in brief. There are basically 4 types of securities namely debt, equity, derivatives, and hybrid which are explained below

  • Debt Securities

Debt securities are basically the debt instruments like bonds that can be traded between 2 parties in the market. Debt securities represent money that is borrowed and must be returned with pre-defined terms and conditions like the interest rate, maturity date, maturity, etc.

  • Equity Securities

The ownership interest held by the shareholder in a company is represented by equity securities.  In other words, by purchasing the equity contracts of an organization as an investment, you are becoming a shareholder of that particular company. The equity security holder is not entitled to regular payments like debt security holder but he can gain profits from the capital gains by selling the stocks from his holdings

  • Derivatives Securities

Debt securities are basically the debt instruments like bonds that can be traded between 2 parties in the market. Debt securities represent money that is borrowed and must be returned with pre-defined terms and conditions like the interest rate, maturity date, maturity, etc.

  • Derivatives Securities

Securities whose values depend on basic variables such as assets, bonds, currencies, interest rates, market indices, goods, etc are called derivatives securities. These securities are primarily used to minimize risks in the market. Derivatives securities are mainly of 4 types namely, Futures, options, forwards, and swaps but the most popular ones in the stock market are futures and options

  • Hybrid Securities

Securities that have combined characteristics of both debt and equity securities are called hybrid securities. There are many companies and banks in the market that turn to hybrid securities in order to borrow money from investors. Hybrid securities are complex products and even experienced financial investors struggle to understand them.

Securities Finance in India

Securities finance in India is governed by certain laws and regulations by some governing bodies. The Companies Act 2013 is the principal legislation governing companies in India that sets out the broad framework for the offering of securities by companies, including public offerings and private placements. The SEBI regulations 2018 make sure that the offerings of equity and the securities linked to securities are regulated comprehensively. The Foreign Exchange Management Act 1999 sets out requirements in relation to foreign investment in Indian securities and also regulates debt securities by Indian companies that are issued overseas.

Types of government securities

Government securities are essentially the debt instruments that are issued by both the central and the state governments in India and people who invest in them gain regular income from the interests. Since these securities are backed by the government, there are almost negligible chances of risk in these securities.

When it comes to the types of government securities, they are basically 4 types available and you can choose whichever low-security product you want to invest in. They are Treasury Bills, Cash Management Bills, Dated government securities, and State development loans.

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