Chapter 7 of 7
Market vocabulary: equity, debt, pooled claims and financing contracts
Make sense of common Indian-market product terms by asking who owes what, how cash arrives and how you exit.
In this chapter
Ownership, borrowing and pooled exposure are different #
Ordinary equity carries residual business risk. Preference shares have specified terms that differ from ordinary shares. Bonds, debentures, commercial paper and Treasury bills are debt or money-market claims with their own maturity and payment structure.
Face value is a contractual or accounting reference, not a universal market price. Market capitalisation uses equity price and corresponding shares; enterprise value asks a broader capital-claim question. Avoid comparing products merely by their rupee quotation.
A pooled unit is a claim through a structure #
Mutual funds, ETFs, REITs and InvITs pool assets under their respective structures. Underlying investments, fees, leverage, distribution and liquidity determine the exposure.
NAV and an exchange price are not interchangeable for every product. A distribution can include components other than ordinary operating profit. Read the product’s own documents rather than assuming every payout is a guaranteed coupon.
Derivatives and financing can change the path #
Futures and options create contract exposure rather than the same immediate ownership as a delivery share purchase. Forwards and swaps can exchange specified future cash flows under bilateral terms.
Repo is a financing transaction involving securities and an agreement to reverse the transaction under its terms. Securities lending and borrowing provides temporary use of securities with return obligations. Neither makes collateral or a borrowed security free wealth.
Look through structured claims #
Securitisation pools cash-flow claims into instruments with terms, priorities and servicing arrangements. The underlying borrower, waterfall, credit support and liquidity matter; a familiar asset label does not make every tranche equally safe.
For any product make a four-column map: claim, payment source, loss path and exit. Keep this conceptual lesson separate from current eligibility, tax or procedural rules. If the cash source is unclear, a quoted return is not enough information.
Hypothetical worked example
A fictional claim comparison
Two instruments each cost ₹10,000. One is shares in a business with uncertain dividends; another promises ₹10,800 after a year subject to issuer and contract risk. Equal purchase price does not make expected return or loss exposure equal.
A pooled fund holding both adds portfolio, fee and liquidity questions. A derivative referencing either adds contract, settlement and potentially funding risk. Identify the claim before ranking the quoted numbers.
Common mistakes
- Treating all demat holdings as ordinary equity.
- Equating a distribution with a guaranteed coupon.
- Ignoring claim priority and liquidity in a structured product.
What should you identify before comparing two products with the same price?
Make this chapter useful
Can you defend the reasoning?
Before moving on, answer the self-check in your own words and write why each alternative fails. Use the worked example to test that explanation. Then apply it in the module research task; keep the assumptions and the evidence that could change your answer.
Desk assignment
What to submit
Build a product map for equity, debt, fund units, derivatives, repo, securities lending and securitised claims.
Use the research ledger for dated evidence, or the module workbooks for calculations. Separate observations, assumptions and interpretation.
Sources and further reading
- NISM: Research Analyst learning topics (scope reference; independent lessons) ↗
- SEBI Investor: understanding bonds ↗
Further-reading references from the curriculum source list. Contract sizes, expiry calendars, settlement references, margin parameters and tax treatment can change; verify the current operative documents for the actual product. Worked figures are illustrative, not current quotes.
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General financial education. No securities recommendation, assured outcome or personal advice. Read the risk disclosures.