When it comes to investing or borrowing, understanding the different types of securities in India is key. Securities are simply financial instruments that hold value and can be traded. Whether you're a new investor, someone looking to borrow against your investments, or simply exploring options, knowing your securities can help you make smarter money decisions.
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Let us now break down what securities are, the various types, and how they work in the Indian context.
What is security?
A security is a financial asset that can be traded or pledged. It represents a claim, ownership, or creditor relationship.
Here are the main characteristics of securities:
- Tradable: Securities can be bought, sold, or exchanged in financial markets.
- Value-driven: Their prices are influenced by market demand and supply.
- Issued by entities: Governments, corporations, or institutions issue securities.
- Used for fundraising or investing: Companies use securities to raise capital, while individuals invest in them for returns.
Securities are broadly categorised into debt, equity, derivatives, hybrid, and alternative instruments. Let's explore each.
Debt securities in India
Debt securities are instruments where you lend money to an entity (like the government or a company) in return for interest payments. These are considered lower-risk compared to equities.
Key highlights:
- Fixed income: You get regular interest payments.
- Lower risk: Especially government-issued debt is considered very safe.
- Tenure-based: Varies from a few days to decades.
Government securities
Issued by the Reserve Bank of India on behalf of the Government of India, these are among the safest investment options.
- Examples include Treasury Bills (T-bills), Government of India Bonds, and State Development Loans.
- They pay interest at fixed or floating rates.
- Investors include individuals, banks, and institutions.
| Type | Maturity | Interest Type | Who Buys Them? |
| Treasury Bills | Up to 364 days | Zero-coupon | Retail investors, banks |
| Government Bonds | 5-40 years | Fixed/floating | Institutions, HNIs, public |
| SDLs (State Loans) | 10-30 years | Fixed | Investors seeking steady returns |
Corporate bonds and debentures
These are issued by companies to raise capital. They generally offer higher returns than government securities but come with higher risk.
- Corporate bonds are structured debt with interest payouts.
- Debentures are unsecured but may offer attractive interest.
- Ratings (AAA to junk) indicate creditworthiness.
- Ideal for medium to long-term investors.
Money market instruments (T-bills, CMBs, CDs)
These are short-term debt instruments with high liquidity.
- T-bills: Issued by the government; zero-coupon and short maturity.
- Cash Management Bills (CMBs): Like T-bills but for ultra-short terms.
- Certificates of Deposit (CDs): Issued by banks; offer fixed interest.
| Instrument | Maturity | Issuer | Risk Level | Return Type |
| T-bills | < 1 year | Government | Very Low | No interest, discounted price |
| CMBs | < 91 days | Government | Very Low | Short-term yield |
| CDs | 7 days-1 year | Banks | Low | Fixed interest |
Equity securities in India
Equity securities represent ownership in a company. Investors buy shares hoping the company performs well so their share value increases.
Main features:
- Ownership: You become a part-owner.
- Returns: Earn via dividends and capital gains.
- Riskier: Market performance directly affects value.
They can be traded in stock markets and are ideal for long-term wealth creation.
Common vs preferred shares
Common shares:
- Voting rights
- Variable dividends
- Higher growth potential
Preferred shares:
- No/limited voting rights
- Fixed dividends
- Priority over common shares in payouts
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Derivative securities
Derivatives derive their value from an underlying asset like a stock, bond, index, or commodity.
They are commonly used for hedging or speculation.
Common examples include:
- Futures contracts: Agreement to buy/sell at a future date at a fixed price.
- Options: Right (not obligation) to buy/sell an asset.
- Swaps: Exchange of cash flows (like interest rate swaps).
Futures, options, swap contracts
- Futures: Used by traders to hedge or speculate. E.g.: Farmer locks the price of wheat for delivery.
- Options: Buy a right to purchase shares at a specific price. E.g.: Investor expects price to rise.
- Swaps: Companies exchange fixed for floating interest payments. E.g., Corporate hedges loan interest.
Hybrid securities
Hybrid securities combine features of debt and equity. They offer regular income like bonds but may also convert into shares.
Useful for investors seeking a balance of safety and growth.
Convertibles, structured products
- Convertible debentures: Start as debt, convert to equity.
- Preference shares: Fixed dividends, sometimes convertible.
- Structured products: Customised investment options linked to market indices, interest rates, or a mix.
Alternative and social instruments
These are less traditional, often used for diversification or global exposure.
They include:
- Instruments listed overseas or tracking foreign assets.
- Socially impactful investments.
ADRs/GDRs, IDRs, participatory notes
- ADRs/GDRs: Indian companies list abroad to raise capital.
- IDRs: Foreign companies listed on Indian exchanges.
- P-notes: Offshore investments in Indian markets by foreign investors.
These help global investors participate in Indian growth without direct registration.
Sovereign Gold Bonds, Gold ETFs, Commodity ETFs
Gold-linked investments are gaining popularity.
| Instrument | Backed by | Return type | Liquidity |
| Sovereign Gold Bonds | Government | Interest + gold price | Tradable on exchanges |
| Gold ETFs | Physical Gold | Market-linked | Highly liquid |
| Commodity ETFs | Commodities | Market-linked | Moderate |
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Distressed securities and special cases
These include:
- Bonds of companies nearing default or bankruptcy.
- Reconstructed debt traded at deep discounts.
- Ideal for high-risk investors seeking turnaround opportunities.
They require careful analysis and are not suited for beginners.
ESG and Green bonds / Sustainable debt
These are issued to fund environmentally or socially responsible projects.
Examples include:
- Renewable energy bonds
- Social welfare and affordable housing bonds
- Green infrastructure debt
Investing in these aligns your money with positive impact goals while still earning returns.
