Debt Instruments

A shareholder, whatever might be the quantity of the shares, is a part owner of the company and entitled to all the benefits of ownership, including dividend (company’s profit distributed to owners). Over the years if the company performs well, other investors would like to become owners of this performing company by buying its shares. This increase in demand for shares leads to increase in its share prices. When the prices of the share increase, the investors have option of selling their shares at a higher price than at which they purchased it. Thus investor can increase their wealth, provided they make the right choice, as the reverse is also true.

Apart from the shares, there are many other financial instruments (securities) used for raising capital. Debentures or bonds are debt instruments which pay interest over their life time and are used by companies to raise medium or long term debt capital. If an investor prefers fixed income, he / she may invest in these instruments which may give him / her higher rate of interest than bank fixed deposit.

• In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector.

The Debt Instruments may be Corporate Debt or Government Debt. Corporate debt instruments are generally called Debentures while Government debt instruments are generally called Bonds, but Bonds can be issued by companies and local governance bodies too.