Understanding the Indian Security Market in a Nutshell:

• Securities are financial tools or contracts that you can buy, sell, or trade.
• The securities include equity shares, preference shares, debentures, bonds, and other such instruments that are issued by companies, financial institutions, or the government.
• Securities are purchased by investors who have money to invest for the future.
• Security ownership allows investors to convert their savings into financial assets which provide a return.
• By Issuing securities companies borrow money from investors, and investors can make money by investing in securities. So, the goals of companies and investors work well together which is a win-win situation for both.

• The securities market helps move money by letting people easily buy and sell financial products. It connects many buyers and sellers, making trading at fair prices easy. These markets convert savings into investments, giving companies access to more investors and providing people with more investment options.
• In India the security marketplace is NSE, BSE, and some portals/websites where you can buy and sell these securities
• The security market consists of buyers, sellers, Intermediaries (Brokers) and regulators
• Broadly, the financial products can be categorized as:
  • Equity
  • Debt
  • Derivative products

1. Equity Shares: It is issued by government or private companies. The investors who want to buy the shares can be individual (retail or HNIs) and Institutional (FPI, FII, DII). Equity shares are traded in stock exchanges or can be directly issued by the company. It is regulated by SEBI.
   • Shares represent partial ownership in a company. All equity shareholders collectively own the company and share both profits and losses based on the company’s performance.
2. Debentures/Bonds/Notes: It is issued by Companies, Governments, or Special Purpose Vehicles (SPVs). The investors who want to buy the shares can be individual (retail or HNIs) and Institutional (FPI, FII, DII). The medium to invest in these instruments is directly by issuers or Stock Exchange (If listed). It is regulated by RBI or SEBI.
   • Debentures/Bonds/Notes are instruments for raising long-term debt. Debentures are either unsecured or secured in nature. There are a variety of debentures/bonds such as fully convertible, non-convertible, and partly convertible debentures. These could be in Domestic as well as foreign currency. We will discuss more about Debentures/Bonds in a separate artic
   • Note: A special purpose vehicle (SPV) is a subsidiary set up by a parent company to separate financial risk.
3. Warrants and Convertible Warrants: It is issued by Companies and Investors can be Institutional or Individual. It is direct issuance by companies or Stock Exchanges and regulated by SEBI.
   • Warrants are options that entitle an investor to buy equity shares of the issuer company after a specified period at a pre-determined price. Only a few companies in the Indian Securities Market have issued warrants till now.
4. Mutual Funds: It is issued by a finance Institute which is called AMC and Investors can be Institutional or Individual. It is direct issuance by AMCs or Stock Exchange and regulated by SEBI.
   • Mutual Funds (MFs) are investment vehicles that pool together the money contributed by investors which the fund invests in a portfolio of securities that reflect the common investment objectives of the investors. We will discuss more about MFs in a separate article
5. Exchange Traded Funds (ETFs): It is issued by an AMC and Investors can be Institutional or Individual. It is direct issuance by AMCs or Stock Exchange and regulated by SEBI.
   • ETF is an investment vehicle that invests funds pooled by investors to track an index, a commodity (e.g., Gold), or a basket of assets. It is similar to an index fund in the sense that its portfolio reflects the index it tracks. But, unlike an index fund, the units of the ETF are listed and traded in demat form on a stock exchange, and their price changes continuously to reflect changes in the index or commodity prices.
   • ETFs provide the diversification benefits of an index fund and the facility to sell or buy at real-time prices, even one unit of the fund. Since an ETF is a passively managed portfolio, its expense ratios are typically lower than that of a mutual fund scheme.
6. Real-estate Investment Trusts (REITs): It is issued by SPVs and Investors can be Institutional or Individual. It is directly issued by the Stock Exchange and regulated by SEBI.
   • REITs are investment vehicles that pool money from various investors and invest in revenue-generating real estate and infrastructure projects.  As the name indicates, these vehicles are formed as a trust. They issue units to the investors to raise money. They enjoy favorable tax treatment as long as they meet the necessary regulatory requirements.
   • In the case of REITs, 80% of the asset should be held in the form of real estate assets. REITs distribute at least 90% of the distributable surplus cash flow to the Investors.

The securities market, where financial securities are issued, bought by investors, and traded among them, has two interconnected segments:

1. Primary Market: This is where issuers raise capital by issuing new securities to investors, typically through Initial Public Offerings (IPOs).
2. Secondary Market: This is where already-issued securities are traded among investors, allowing them to sell or buy existing securities after the IPO.

The primary market creates financial assets, while the secondary market ensures their tradability. This makes these two segments interdependent and inseparable.

1. Stock exchange: It is a marketplace where stocks, bonds, and other financial securities are bought and sold
2. Retail Participants: General public participate in buying and selling of stocks
3. CDSL/NSDL: Handle the dematerialization of securities and enables investors to hold and transfer securities electronically with the help of a stockbroker
4. Institutional Participants: Financial institutions such as banks and mutual funds have high-volume access to public funds.
5. Foreign Portfolio Investors (FPIs): Foreign Investors who invest in Indian security market
6. P-Note Participants: P-Note participants are the foreign investors who invests in Indian security market.
7. Mutual Funds: It is a financial institution that invests people’s money in the securities market with the help of a fund manager.
8. Insurance Companies: Insurance companies provide financial security to people and are financial institutions that invest their clients’ money in the security market.
9. Pension Funds (NPS): A pension fund is a pool of money contributed by employees/employers/Individuals, invest in security market.
10. Venture Capital Funds: Venture capital is a form of financing provided to startups and small businesses to support their growth. When a startup goes public with an IPO, venture capitalists have an opportunity to exit their investment.
11. Hedge Funds: A hedge fund is a pooled investment fund for wealthy investors that takes higher risks and invests in a variety of financial securities.
12. Alternative Investment Funds: AIFs are privately pooled investment vehicles that invest in a diverse range of assets beyond traditional stocks, bonds, and cash, including REITs, angel investments, venture capital funds, and more
13. Investment Advisers/Firms: Investment advisors and firms invest their clients’ money in the security market to help them achieve their future financial goals.
14. Employee Provident Fund (EPF): It is a retirement savings scheme in India which also invests in Indian security market
15. Corporates: Corporates also invest in the stock market when they anticipate good growth potential in specific stocks.
16. Family Offices: Most of the HNIs have their own family offices and they invest in Indian security market

1. Cash, Tom, and Spot Trades/Transactions (Equity markets in India offer Spot trades.)
2. Forward transactions
3. Futures
4. Options
5. Swaps
6. Trading, Hedging, Arbitrage, Pledging of Shares         

De-materialization (DEMAT): This is the process of converting physical securities into electronic form. To do this, an investor opens a DEMAT account with a Depository Participant (DP), typically through a chosen stockbroker. This account holds all investments in digital form.

Re-materialization: This is the reverse process, where electronic securities are converted back into physical form. Upon the investor’s request, the securities are issued in physical form with distinctive numbers, replacing the electronic entries.