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CAPITAL MARKET INSTRUMENT (EDU-59-JB-05.08.10) Following are the terminology of capital market: 1.

Pure Instrument: Equity shares, Preference shares and debenture or bonds which are issued with the basic charterstics without mixing the instruments are called Pure Instrument. 2. Hybrid Instrument : Those instrument which are created by combining the features of equity with bond, preference or equity shares is called as Hybrid Instrument. This is created in order to fulfill the needs of investors. For example: Convertible Preference Shares, Partial convertible debentures etc. 3. Derivative: are those instrument whose value is determined from the reference of other financial instruments. For example: future and option 4. Equity Shares: are those shares which refer to a part of ownership as a shareholder . These type of shareholder undertakes the maximum entrepreneurial risk associate with the business. 5. Preference shares: Sec. 85(1) of the Companies Act defines preference shares as those shares which carry preferential rights as the payment of dividend at a fixed rate and as to repayment of capital in case of winding up of the company. Thus, both the preferential rights include (a) preference in payment of dividend and (b) preference in repayment of capital in case of winding up of the company, must attach to preference shares. 6. Cumulative Preference Shares : are those preference shares which gets dividend in first claim as and when dividends are declared .if the company is not earned profit, then the dividend get accumulated and whenever company earns profit the shareholder will get all the accumulated dividend. 7. Non Cumulative Preference Shares: are those preference shares which does not accumulate the profit if the company has not earned the profit. As and when the company declare dividend then only it goes to non- cumulative preference shares. 8. Convertible Preference Shares: If the Preference Share holders have termed in issue of shares that they can convert the preference shares into equity shares. These type of convertible shares are called as Covertible Preference Shares. Preference shares are convertible because to get various rights like voting rights, bonus issue and higher dividend. So for these issues, companies issues these shares with premium.

9. Redeemable Preference Shares : When the preference shares are issued with the stipulation that these shares are to be redeemed after a certain period of time, then such preference shares are known as redeemable preference shares. If a company collects the money through redeemable preference shares, this money must be returned on its maturity whether company is liquidated or not. These shares are issued only to raise the capital for temporary period. 10. Irredeemable Preference Shares: are those shares which are issued with the terms that shares will be not redeemed for indefinite period except certain instances like winding up. 11. Participating Preference Shares : If a company earns profit then it gets distributed to preference shareholders,equity shareholders etc. But after that also profit is left, then such profit can again distribute as dividend to participating preference shareholder as well as company can also issue bonus shares. 12. Debentures : includes stocks, bonds etc which are issued by the company as a certificate of indebtness. For the issue of debentures, date of the repayment of principle and interest is decided . It is created on the charge of undertaking of assets of the company. If the company is not able to make the payment on the time, so the investors can redeem the debentures by undertaking the assets or from the sale of assets. 13. Unsecured debentures: are those debentures which are not secured from the asset for the repayment of principle and interest. 14. Secured debentures: are those debentures which are secured by registered asset of the company. 15. Redeemable debentures: are those debentures which are redeemable after a certain period or on their expiry date. 16. Perpetual debentures: are those debentures which are issued for the redemption on any specific event like winding up which may happen for any indefinite period. 17. Bearer debentures: are the debentures payable to bearer and also transferrable and the name of the holder will not be registered in the books of the company. SO whoever is the holder can bear the principle and interest as on due. 18. Equity shares with detachable warrants: are those warrants whose

holder apply for a specific numbers of shares on appointed date at a pre- determined price. These warrants are separately registered with stock exchange and also traded separately. In Indian Market, Reliance applies on such warrants. 19. Sweat Equity Shares: are shares allotted to employees o companies, as rewards, free of cost or at a price which is considerable below the ruling market price. It is given as a reward for performance to further encourage them to put in their best in the organization. Under the Companies act, 1956, sweat equity shares means equity shares issued by a company to its employees or directors at a discounts or for consideration other than cash for providing know how or making available rights in the nature of intellectual property rights. Such issue may be made only if it is authorized by a special resolution passed by the company in the general meeting specifying the number of shares to be issued, class of the employees or directors to whom such shares are to be issued , the consideration and the current market price of the equity shares. Sweat equity shares can be issued if more than one year has elapsed from the commencement of the business. All limitations, restriction and provisions relating to equity shares shall be applicable to such sweat equityshares. 20. Tracking Stocks: is a type of stock issued as per the performance of a particular department on the financial position. This is issued, so that each department can be tracked by investors. These stock earns only from the position of that particular invested department. It does not matter as a whole of the company.