Types of Capital Market Instruments

Preference shares Equity shares Non-voting equity shares Company fixed deposits Warrants Debentures and Bonds

Types of Capital Market InstrumentsShares that carry preferential rights in comparison with ordinary sharesRights regarding payment of dividend, distribution of assets of the company in case of its winding upTypes:Cumulative and Non-cumulative Preference shares Participating and Non participating Preference shares Redeemable and Irredeemable Preference shares Fully convertible cumulative Preference shares Preference shares with warrants attached

Preference sharesFeatures:Claims on income and assetsFixed dividendCumulative dividendRedemptionSinking fundCall featureParticipation featureConvertibility

Equity shares also known as Ordinary shares are the shares held by the owners of the corporate entityEquity shareholders face greater risks and larger share in profits through higher dividendsFeatures:Claim on incomeClaim on assetsVoting rightsRights to controlPre-emptive rightsLimited liability

Equity / Ordinary SharesTo the recommendation of Abid Hussian Committee and amendment to the companies act, corporate management are permitted to mobilize additional capital without diluting the interest of existing shareholders with the help of new instrument called Non voting equity sharesSuch shares will be entitled to all the benefits (dividend, bonus rights and preferential offer of shares, etc.,)except the right to vote in general meetingsThese shares will carry higher dividend rate than that of voting sharesNon-voting equity sharesIf a company fails to pay dividend, these shareholders will be entitled to voting rights on prorate basis until the company resumes paying dividendThis kind of share is similar to preference shares with regard to non voting rights but may get the advantage of higher dividends as well as appreciation in share values through entitlement to bonus shares which is not available in preference shares

Fixed deposit are the attractive source of short-term capital both for companies and investors as wellCorporate favor fixed deposits as an ideal form of mobilizing working capital without going through the process of mortgaging assetsInvestors find fixed deposits as a simple avenue for investment in popular companies at reasonable and safe interest ratesInvestors are relieved of the problems of market value fluctuations and there are no transfer formalities

Company Fixed DepositsA security issued by the company, granting its holder the right to purchase specified number of shares, at a specified price, any time prior to an expiry date is known as warrantWarrants may be issued with either debentures or equity sharesWarrants in Indian context are called Sweeteners issued since 1993The exercise price of warrant is usually above the market price of the shares so as to encourage the existing shareholders to purchase itOne warrant buys one equity shareWarrantsA document that either creates a debt or acknowledges is known debentureFeatures:Interest rateMaturityRedemptionIndenture or debenture trust deedSecurityYieldClaims on income and assetsDebentureParticipating debenturesConvertible debenturesDebt-Equity swapsZero-coupon convertible notesSPN (Secured premium notes) with detachable warrantsNCD with detachable equity warrantsZero-interest FCDSecured zero-interest PCD with detachable and separately tradable warrantsFCD with interest (optional)Floating rate bondsKinds of Debentures