Unit:2 INSTRUMENTS OF INVESTMENT

Investment Instruments-Capital market instruments, Money market instruments, Derivatives

Futures & Options. Shares -types &features. Debentures - nature & types. Primary market -
Role of NIM, methods of floating new issues.
Investment instruments-Capital market
instruments,Money market instruments,
Derivatives
Investment instruments refer to various financial assets or
products that individuals or entities can invest in to
potentially generate returns.

Capital Market instruments:

This refers to a market where long-term securities such as
stocks and bonds are traded. It facilitates the raising of
capital for companies and governments. Investors buy
securities in the capital market with the expectation of
earning returns through dividends or capital appreciation.

Money Market instruments:

This is where short-term debt securities with maturities
typically less than one year are traded. Money market
instruments include treasury bills, commercial paper,
certificates of deposit, and short-term bonds.

Derivatives:
These are financial contracts whose value is derived from
the value of an underlying asset, index, or rate.
Shares

Shares, also known as stocks, represent ownership in a

company. When you invest in shares, you're buying a
portion of that company. As the company grows and
profits, the value of your shares can increase, allowing you
to sell them for a profit. Additionally, some companies pay
dividends to their shareholders, which are a portion of the
company's earnings distributed to them.

.Types of shares
Common Shares: These represent ownership in a
company and typically come with voting rights at
shareholder meetings.
Preferred Shares: These usually don't come with voting
rights but have priority over common shares in receiving
dividends and assets in the event of liquidation.
Growth Shares: These are shares of companies
expected to grow at an above-average rate compared to
other companies in the market.
Value Shares: These are shares of companies that are
perceived to be undervalued by the market, offering
potential for price appreciation.

Blue-chip Shares: These are shares of large,

well-established companies with a history of stable
performance and reliable dividends.
Small-cap, Mid-cap, and Large-cap Shares: These
categorize companies by their market capitalization, with
small-cap being the smallest and large-cap being the
largest in terms of market value.
Cyclical Shares: These belong to companies whose
performance is closely tied to the economic cycle, such as
those in industries like construction and automotive.
Defensive Shares: These belong to companies that tend
to perform well even during economic downturns, such as
those in industries like healthcare and consumer staples.
Features of shares

Ownership: When you buy shares, you become a

part-owner of the company, giving you certain rights and
privileges, such as voting at shareholder meetings and
receiving dividends.
Dividends: Some shares pay dividends, which are a
portion of the company's profits distributed to shareholders
periodically.
Capital Gains: Shares can appreciate in value over time,
allowing you to sell them at a higher price than what you
paid, resulting in capital gains.

Liquidity: Shares are often traded on stock exchanges,

providing investors with the ability to buy and sell them
relatively easily, offering liquidity to their investment.
Risk: Investing in shares carries risk, as the value of
shares can fluctuate based on various factors, including
market conditions, company performance, and economic
outlook.
Volatility: Shares can experience price volatility, meaning
their value can change rapidly and unpredictably in
response to market events and news.
Diversification: Shares allow investors to diversify their
investment portfolios by investing in different companies
across various sectors and industries.
Transparency: Publicly traded companies are required to
disclose information about their financial performance and
operations, providing transparency to shareholders.
Rights Issues: Shareholders may have the right to
participate in rights issues, allowing them to purchase
additional shares at a discounted price to maintain their
ownership stake in the company.
Primary market

The primary market refers to the market

where newly issued securities are sold
for the first time, such as through initial
public offerings (IPOs) or bond issuances
directly from the issuer to investors.
" Net Interest Margin (NIM) plays a
crucial role for banks and financial
institutions.

It's essentially the difference between

the interest income generated by
banks through lending and
investments and the interest
expenses paid out to depositorsand
other sources of funding.
A healthy NIM indicates the
profitability of a bank's core lending
and investment activities.

" BankSoften strive to maintain or

increase their NIM through various
strategies like managing interest rate
spreads,optimizing loan portfolios,
and controlling funding costs.
Methods of floating new issues typically
include:

1. Initial Public Offering (IPO): This

involves offering shares of a company
to the public for the first time, allowing
it to raise capital by selling newly
issued securities.

2. Rights Issue: Existing shareholders

are given the right to buy additional
shares at a discounted price, usually in
proportion to their existing holdings,
enabling the company to raise funds
from its current investors.
3. Private Placement: Securities are

offered and sold directly to a select

group of institutional investors or
accredited investors, bypassing the
public marke
4. Follow-on Offering: Additional
shares are issued by acompany that's
already publicly traded, allowing it to
raise more capital without going
through the IPO process again.
5. Venture Capital or Private Equity
Investment: Involves selling shares to
private investors, typically in exchange
for equity ownership or a stake in the
company.
6. Crowdfunding: Utilizing online
platforms to raise small amounts of
capital from a large number of
individuals or investors,often used by
startups and small businesses.