Financial and Strategic Management

What are Securities as per SEBI?

β€œAn investment is the current commitment of money or other resources in the expectation of reaping future benefits.” (Zvi Bodie, 2016). Investment means to forego present consumption for the increased consumption resource available in the future. It can be in any form, assets of all types and kinds are it jewelry, commodity, real estate, etc. An investor can buy a share of a company in anticipation of getting good returns in the future. In this section of the book, we are interested in Financial Assets or securities like equity shares, bonds, and debentures, etc. At this point, the reader should understand that financial assets are different from real assets. While financial assets are the paper claim representing an indirect claim to real assets in form of debt or equity commitments, the real assets are land and building, machines, etc., which are used to produce goods and services. Therefore, security is understood to be a debt or equity instrument issued by a firm in lieu of the funds raised by it to meet its long term and short term requirements. Among the many properties that distinguish real from financial assets are liquidity and marketability. These features make the financial assets more attractive for investors as they are able to liquidate their investments easily in ready and active markets.

The decision of the investor is confronted with many issues, like- in which asset class to invest; shares, bonds, bullion, etc. The investor must decide the time horizon for which he/she needs to invest and balance the combination of his/her expected return to the risk they are ready to face. These are some of the issues which any investor will face.

Securities may be defined as instruments issued by seekers of funds in the investment market to the providers of funds in lieu of funds.

These instruments prima facie provide evidence of ownership to the holder of the instrument. The owner is entitled to receive all the benefits due on the instrument and to retrieve his investment at the time of redemption. Securities can broadly be divided into two categories – Debt Securities and Equity Securities. However, Section 2(h) of Securities Contract (Regulation) Act, 1956, defines securities as under:

Securities include –

(i) shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like nature in or of any incorporated company or other body corporate.

(ia) derivative.

(ib) units or any other instrument issued by any collective investment scheme to the Investors in such schemes.

(ic) security receipt as defined in clause (zg) of Section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

(id) units or any other such instrument issued to the investors under any mutual fund scheme.

(ii) Government securities.

(iia) such other instruments as may be declared by the Central Government to be securities and,

(iii) rights or interests in securities.

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Shreya Kushwaha

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