Various Instruments of Financial Market are covered in this article in brief. let us see them one by one.
Zero Coupon Bonds (ZCB):
Zero Coupon Bonds (ZCB) are issued at a discount to face value. They don’t provide for any payment of interest during the currency of the bond but it pays the face value in the maturity. For example a bond of the face value of Rs. 100 can be issued at Rs. 90, at the time maturity, bondholder will be paid Rs. 100 only. These bonds are popularly called as Zeros.
Deep Discount Bond (DDB):
Deep Discount Bond (DDB) is similar to Zero Coupon Bonds (ZCB), but the difference may be that DDB is issued to at deep (more) discount to the face value and can have not necessarily a long period of maturity.
Sweat Equity Share:
Sweat Equity Share is the share which can be issued to the employers and directors of the company at a discount, or the shares issued for consideration other man cash for providing know-how or making available rights in the nature of intellectual property rights or value additions may call as Sweat Equity Shares.
Global Depository Receipt (GDR):
- Global Depository Receipt (GDR) is a dollar-denominated instrument traded on the stock exchanges in Europe or USA or both. Normally, they represent the certain number of equity shares. The GDR represents a fixed ratio of Indian shares. The GDR is issued by a depository which is denominated in the US Dollars, while actual Indian shares are held by the custodian in India (typically an Indian Institution as ICICI).
- GDRs are negotiable instruments.
- GDRs are also known as Euro Equality Shares, since 1992, the government allowed Indian companies to access international capital markets through it.
American Depository Receipt (ADR):
- American Depository Receipts are US-Dollar denominated instruments issued by a depository bank in the USA representing ownership in non-USA securities, usually referred to as underlying equity shares.
- ADRs are also negotiable instruments.
- ADRs are usually listed in New York Stock Exchange.
Euro Convertible Bond (ECB):
Euro Convertible Bonds (ECB) are an equity-linked security which can be converted into shares or into depository receipts. ECB is foreign currency debt instrument issued by an Indian company.
Mutual Fund (MF):
Mutual Funds are a financial institution that aims at continuously garnering investible resources from individuals and managing these resources professionally to create a portfolio of securities order to provide the uninitiated small investor a reasonable return on his investment through dividends and capital appreciation.
On this basis of the structure, the Mutual funds can be divided into two types. They are:
1. Open Ended MFs: Funds which are available for subscription through the year and can be sold and purchased any time. They are highly liquid.
2. Close Ended MFs: These have stipulated maturity period prior to which these cannot be sold and purchased except on the stock exchanges. They have maturity period usually from 3 to 15 years.
On the basis of investment profile, it can be classified as:
- Growth Funds
- Income Funds and
- Balanced Funds.