| Meaning of Security:
A financial instrument that represents: an ownership position in a publicly-traded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option. A security is a fungible, negotiable financial instrument that represents some type of financial value. The company or entity that issues the security is known as the issuer.
For example, the issuer of a bond issue may be a municipal government raising funds for a particular project. Investors of securities may be retail investors - those who buy and sell securities on their own behalf and not for an organization - and wholesale investors - financial institutions acting on behalf of clients or acting on their own account. Institutional investors include investment banks, pension funds, managed funds and insurance companies.
Securities are typically divided into debt securities and equities. A debt security is a type of security that represents money that is borrowed that must be repaid, with terms that define the amount borrowed, interest rate and maturity/renewal date. Debt securities include government and corporate bonds, certificates of deposit (CDs), preferred stock and collateralized securities (such as CDOs and CMOs).
Equities represent ownership interest held by shareholders in a corporation, such as a stock. Unlike holders of debt securities who generally receive only interest and the repayment of the principal, holders of equity securities are able to profit from capital gains.
Debentures
- Kind of loan taken by the company from general public
- carry a coupon rate called as rate of interest paid half yearly
- Company is liable to pay the interest whether it earns the profits or not
Features:
- a type of loan
- no voting right
- payment of interest at a fixed rate
- these might have a provision for redemption/ conversion
- priority over preference and equity share holders
- interest is a tax deductible expense for the company
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