The following are the different types of financial instruments-
A debenture is the most common form of long-term loan taken by a company. It is
usually a loan repayable at a fixed date, although some debentures are irredeemable securities;
these are sometimes called perpetual debentures. Most debentures also pay a fixed rate of interest,
and this interest must be paid before a dividend is paid to shareholders.
A bond is a debt investment with which the investor loans money to an entity (company or government)
that borrows the funds for a defined period of time at a specified interest rate.
Preferential shareholders enjoy a preferential right over equity shareholders with regards to: Receipt
Receipt of residual funds after liquidation
However, preferential shareholders do not have voting rights; they are entitled only to a fixed
Equity shares represent proportionate ownership in a company. Investors who own equity shares in a company
are entitled to ownership rights, such as:
- Share in the profits of the company (in the form of dividends)
- Share in the residual funds after liquidation / winding up of the company
- Selection of directors in the board, etc.
The Central Government and the State Governments issue securities periodically for the purpose of raising
loans from the public. There are 2 main types of Government securities:
Dated Securities: have a maturity period of more than 1 year
Treasury Bills: have a maturity period of less than 1 year