Products Traded in the Indian Securities Market

Indian securities markets host a variety of tradable instruments, broadly grouped into equity, debt, derivative and collective‑investment categories. Each group serves different financing needs of issuers and distinct risk‑return preferences of investors. For the NISM exam, remembering the primary purpose and key features of each group is essential.

Equity instruments represent ownership in a company, debt instruments represent a creditor relationship, derivatives are contracts whose value derives from an underlying asset, and collective‑investment schemes pool money from many investors to invest in diversified portfolios. Hybrid products combine features of two or more categories, for example, convertible bonds that have debt characteristics but can be converted into equity.

Exam questions often test your ability to match a product to its classification, identify the regulatory body (SEBI) that oversees it, and recognise typical market participants. A common trap is to confuse a debenture (debt) with a pre‑IPO share (equity). Keep the ownership versus creditor distinction clear.

Equity securities include ordinary shares, preference shares, equity‑linked debentures and employee stock options. Ordinary shares carry voting rights, dividend entitlement and capital appreciation potential. Preference shares have a fixed dividend and preferential claim on assets but usually lack voting rights.

Equity‑linked debentures (ELDs) are hybrid – they are issued as debt but carry an equity conversion feature. For the exam, focus on the fact that the conversion right makes them part of the equity‑linked category, not pure debt.

Key exam points: the primary market for equities is the IPO and follow‑on issue; the secondary market trading occurs on BSE and NSE; SEBI’s (Issue of Capital and Disclosure Requirements) Regulations govern disclosures; and the settlement cycle is T+2.

Debt securities comprise government bonds, treasury bills, corporate bonds, non‑convertible debentures (NCDs) and commercial paper. They represent a promise to pay a fixed interest (coupon) and return the principal at maturity. The risk hierarchy is government securities (lowest risk) followed by high‑grade corporate bonds, then lower‑rated NCDs.

All debt instruments are listed on the exchange for secondary market trading, but many are also traded over‑the‑counter (OTC). SEBI’s (Depositories Act) and the RBI’s (Securities Market) guidelines prescribe registration, credit rating and disclosure norms.

For exam purposes, remember the difference between a bond (perpetual or term‑based) and a commercial paper (short‑term, unsecured, maturity ≤ 1 year). Also note that the yield to maturity (YTM) is the standard measure of return for bonds, though the formula is not required for this sub‑topic.

Derivatives traded in India include futures and options on equities, indices, currencies and commodities. A futures contract obligates the holder to buy or sell the underlying at a predetermined price on a future date, while an option gives the right but not the obligation.

Derivatives are primarily used for hedging, speculation and arbitrage. The underlying asset can be a stock, an index (e.g., NIFTY 50), a foreign currency pair (e.g., USD/INR) or a commodity (e.g., crude oil). SEBI’s (Derivatives) Regulations lay down margin requirements, position limits and reporting standards.

Exam focus: differentiate between a call option (right to buy) and a put option (right to sell), understand the concept of contract size, and know the settlement mechanism – cash‑settled for index futures, physical for commodity futures.

Hybrid securities blend features of equity and debt. Convertible bonds can be converted into equity at a pre‑specified price, while equity‑linked notes provide returns linked to the performance of an equity index. Structured products often embed options, creating payoff profiles that differ from plain bonds.

These instruments are typically issued by corporates to raise capital at a lower coupon rate, offering investors upside potential. However, they carry additional complexity and liquidity risk, which is why the exam may ask about their risk profile compared to pure equity or debt.

Key regulatory note: SEBI requires detailed prospectus disclosures for hybrids, including conversion ratios, trigger events and redemption terms. Failure to disclose these can lead to penalties.

Collective Investment Schemes include mutual funds, exchange‑traded funds (ETFs) and alternative investment funds (AIFs). Investors pool money, and the fund manager invests in a diversified portfolio of securities, reducing individual risk.

Mutual funds are open‑ended, allowing daily entry and exit at the Net Asset Value (NAV). ETFs are listed on the exchange and trade like equities, offering intra‑day liquidity. AIFs cater to sophisticated investors and may invest in private equity, real estate or hedge‑fund strategies.

Regulatory framework: SEBI (Mutual Funds) Regulations, 1996 and SEBI (AIF) Regulations, 2012. Important exam points include the distinction between NAV calculation (total market value of assets minus liabilities divided by units outstanding) and the pricing mechanism for ETFs (market‑driven).

SEBI is the principal regulator for all listed securities in India. It issues specific regulations for each product class – for example, the (Issue of Capital and Disclosure Requirements) Regulations for equities, the (Depositories) Regulations for debt securities, and the (Derivatives) Regulations for futures and options.

In addition, the Reserve Bank of India (RBI) oversees government securities and certain money‑market instruments, while the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) enforce exchange‑level rules such as margin requirements and circuit filters.

Exam relevance: questions may ask which regulator governs a particular product or which regulation mandates a specific disclosure. Remember the hierarchy – SEBI > RBI > Exchange for listed instruments.

Use mnemonic "E‑D‑D‑H‑C" to recall the order: Equity, Debt, Derivatives, Hybrid, Collective‑investment. This helps quickly eliminate wrong options in classification questions.

Focus on three attributes for each product: issuer type, risk profile, and settlement mechanism. Creating a two‑column table in your notes (product vs. attribute) speeds up revision.

Practice the Holding Period Return formula with both price‑only and price‑plus‑dividend scenarios. The exam often presents the numbers in a tabular format; ensure you read the units correctly (₹ vs. ₹ per share).