INTRODUCTION TO SECURITIES

Introduction to Securities

Equity Capital: Refers to the funds contributed by owners or investors in exchange for ownership rights in a company.
Debt Capital: Refers to the funds borrowed by a company from lenders, with an obligation to repay with interest.

Equity Capital:
- Limited Liability: Shareholders' liability is limited to their investment.
- Ownership Rights: Shareholders have ownership rights and can participate in the management of the company.
- Uncertain Pay-outs: Returns on equity investment are uncertain and may come in the form of dividends or capital appreciation.
- Perpetuity: Equity capital is permanent and cannot be redeemed.
Debt Capital:
- Fixed Return: Debt investors receive a fixed return in the form of interest.
- Security: Debt investors have a right to receive periodic interest and return of capital on maturity.
- Repayment Obligation: Companies have an obligation to repay debt capital with interest.
- Differential Rights: Debt securities may be secured or unsecured, with varying rights and obligations.

Convertible Debentures: Combine features of debt and equity, with the option to convert debt into equity shares at maturity.
Preference Shares: Resemble debt instruments, with a pre-determined rate of dividend, but do not have a fixed maturity period or right over assets.

Cost of Capital: The price a company pays for using equity or debt capital, which may be fixed or variable.
Credit Rating: An important factor in investing in debt securities, which assesses the default risk associated with a company.
Secured and Unsecured Loans: Debt instruments may be secured against the assets of a company or unsecured, with varying rights and obligations.