Industrial Sec Market1

8/10/2019 Industrial Sec Market1

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INDUSTRIAL SECURITIES MARKET

The market for industrial securities is known

as industrial securities market. It is an idealmarket for corporate securities such as bonds

and equities. Business organizations raisecapital through three major types of

securities.

They are(a) ordinary shares

(b) preference shares and

(c) debentures or bonds.

Ordinary shares and preference shares arealso known as equities. These are the major

primary securities in the financial markets ofany country. They differ in their investmentcharacteristics and as such satisfy differentpreferences of various investors and enjoy

different degrees of popularity.


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What Does Ordin ary SharesMean?Any shares that are not preferred shares and do not haveany predetermined dividend amounts. An ordinary share

represents equity ownership in a company and entitles theowner to a vote in matters put before shareholders inproportion to their percentage ownership in the company.

Ordinary shareholders are entitled to receive dividends ifany are available after dividends on preferred shares arepaid. They are also entitled to their share of the residualeconomic value of the company should the business

unwind; however, they are last in line after bondholdersand preferred shareholders for receiving businessproceeds. As such, ordinary shareholders are consideredunsecured creditors.

Also known as "common stock".

Investopedia explains Ordin ary SharesOrdinary shares include those traded privately as well asshares that trade on the various public stockexchanges. Ordinary shares have a stated "par value", butthis value is more of a technicality, and will rarely be morethan a few pennies per share. The true value of anordinary share is based on the price obtained throughmarket forces, the value of the underlying business andinvestor sentiment toward the company.


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Preference shares

Preference shares (prefs) are legally shares, but theyare very different fromordinary shares. The

economic effect of prefs is more like that ofbonds.

Likeconvertibles,they are regarded ashybrids of

debt and equity:

Dividends on preference shares have to bepaid before dividends on ordinary shares.

Dividends on ordinary shares may not be

paid unless the fixed dividends on preference

shares is paid first.

Dividends are fixed likebond coupons,

although there are usually provisions to notpay, or delay payments.

Preference shareholders have a higher

priority if a company isliquidatedthan

ordinary shareholders, although a lower

priority than debt holders.

In the case ofcumulative prefs,if the

dividend is not paid in full, the unpaid

amount is added to the next dividend due.
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Preference dividends are fixed, so they do not

participate in increases (or decreases) in

profits as ordinary shareholders do.

The effect of these is to make the income stream

from preference shares more similar to that from

debt than that from ordinary shares. Most

importantly, fixed dividends are similar to interest

payments. However, they are legally shares and are

subject to the same tax treatment.

Debentures

Inlaw, a debentureis a document that either creates a

debt or acknowledges it. Incorporate finance, the term isused for a medium- to long-term debtinstrumentused by

large companies to borrow money. In some countries the

term is used interchangeably withbond,loan stockor

note. A debenture is thus like a certificate of loan or a

loan bond evidencing the fact that the company is liable to

pay a specified amount with interest and although the

money raised by the debentures becomes a part of the

company's capital structure, it does not become share

capital.
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Debentures are generally freelytransferableby the

debenture holder. Debenture holders have no rights tovote in the company's general meetings ofshareholders,

but they may have separate meetings or votes e.g. on

changes to the rights attached to the debentures. The

interest paid to them is a charge against profit in the

company'sfinancial statements.

Bonds

Infinance, a bondis a debtsecurity, in which the

authorized issuer owes the holders a debt and, depending

on the terms of the bond, is obliged to payinterest(the

coupon) to use and/or to repay the principal at a later date,

termed maturity.A bond is a formal contractto repayborrowed money with interest at fixed intervals.[1]

Thus a bond is like aloan: the holderof the bond is the

lender (creditor), the issuerof the bond is the borrower

(debtor), and the couponis the interest. Bonds provide the

borrower with external funds to finance long-term

investments, or, in the case of government bonds, tofinance current expenditure.Certificates of deposit(CDs)

orcommercial paperare considered to bemoney market

instruments and not bonds.
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Bonds andstocksare bothsecurities, but the major

difference between the two is that (capital) stockholders

have anequitystake in the company (i.e., they are

owners), whereas bondholders have a creditor stake in thecompany (i.e., they are lenders). Another difference is that

bonds usually have a defined term, or maturity, after

which the bond is redeemed, whereas stocks may be

outstanding indefinitely. An exception is aconsol bond,

which is aperpetuity(i.e., bond with no maturity).

Bonds vs. debentures

When it comes to income and debts, bonds and

debentures must be considered. Both bond and debentures

belong to the classification of fixed income instruments.Holders of these instruments get the fixed income through

the payments of interest. The interest will depend on the

principal amount of purchase. It is very important to know

the use and sources of these two. It is also very important

to know the difference between these two either. Having

the right information on these two instruments willdefinitely keep your money safe.

Current interest rates indicate the prices of bonds and

debentures. These rates are constantly fluctuating. Their
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prices are affected by many factors. One of the most

important factors that affect these rates is the future

prediction of inflation. During the rise of inflation, the

prices of the fixed income fluctuate. Other factors thataffect the prices of these instruments are general terms,

level of supply and demand, attractiveness of the issuer,

and other bond features.

Bond and debentures have different types of uses and

comes from different sources. Their stamp dutyand how

they trade also differ. Bonds are more secured when itcomes to default by the issuer. This is because, bonds

issued by the government. On the other hand, debenture

holders are in more risk because they do not have

resource to asset. This is risky when debenture issuers

come to a default, this is because debentures are issued by

companies, unlike bonds.

Bonds are long-term debt securities issued by thegovernment. Bonds may also be undertakings owned by

the government or other development financial

institutions. When instruments like these are issued by

other sources such as companies and other entities, then it

is called a debenture.

Government bonds are usually issued in auctions. This is

called a public sale where members bid for the

instrument. The price and the coupon are important

factors in determining the percent return of the bond.
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Private placement bond may also be done, because having

an auction may get prohibitive. In this case, lender will

not delve in to the larger bond market.

On the other hand, debentures are levied by two kinds of

stamps. These stamps are called viz issuance and transfer.

This has been going on for years. Transfer is paid to the

state where the company who issued the debenture is

located. Transfer is the biggest and most popular way in

trading debentures. Issuances are done in connection with

mortgage creation.

Bonds and debentures actually have the same features.

They are both instruments for fixed income. The major

difference between the two is the issuer which makes

debentures riskier compared to bonds (although you still

cant be assured that government bonds are less risky).

But both are really great sources of fixed incomenonetheless.

SUMMARY:

1.

Bonds are more secured, while debentures are more risky.

2.

Bonds are issued by the government while debentures are

issued by companies.

3.


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Bonds are done by bidding or private placement bonds,

while debentures are done through transfer and issuance

by mortgage.

Industrial Sec Market1

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