INDUSTRIAL SECURITIES MARKET

The market for industrial securities is known

as industrial securities market. It is an ideal
market for corporate securities such as bonds
and equities. Business organizations raise
capital through three major types of
securities.
They are
(a) ordinary shares
(b) preference shares and
(c) debentures or bonds.
Ordinary shares and preference shares are
also known as equities. These are the major
primary securities in the financial markets of
any country. They differ in their investment
characteristics and as such satisfy different
preferences of various investors and enjoy
different degrees of popularity.

What Does Ordinary Shares Mean?

Any shares that are not preferred shares and do not have
any predetermined dividend amounts. An ordinary share
represents equity ownership in a company and entitles the
owner to a vote in matters put before shareholders in
proportion to their percentage ownership in the company.
Ordinary shareholders are entitled to receive dividends if
any are available after dividends on preferred shares are
paid. They are also entitled to their share of the residual
economic value of the company should the business
unwind; however, they are last in line after bondholders
and preferred shareholders for receiving business
proceeds. As such, ordinary shareholders are considered
unsecured creditors.
Also known as "common stock".

Investopedia explains Ordinary Shares

Ordinary shares include those traded privately as well as
shares that trade on the various public stock
exchanges. Ordinary shares have a stated "par value", but
this value is more of a technicality, and will rarely be more
than a few pennies per share. The true value of an
ordinary share is based on the price obtained through
market forces, the value of the underlying business and
investor sentiment toward the company.

Preference shares
Preference shares (prefs) are legally shares, but they
are very different from ordinary shares. The
economic effect of prefs is more like that of bonds.
Like convertibles, they are regarded as hybrids of
debt and equity:

Dividends on preference shares have to be

paid before dividends on ordinary shares.
Dividends on ordinary shares may not be
paid unless the fixed dividends on preference
shares is paid first.
Dividends are fixed like bond coupons,
although there are usually provisions to not
pay, or delay payments.
Preference shareholders have a higher
priority if a company is liquidated than
ordinary shareholders, although a lower
priority than debt holders.
In the case of cumulative prefs, if the
dividend is not paid in full, the unpaid
amount is added to the next dividend due.

Preference dividends are fixed, so they do not

participate in increases (or decreases) in
profits as ordinary shareholders do.

The effect of these is to make the income stream

from preference shares more similar to that from
debt than that from ordinary shares. Most
importantly, fixed dividends are similar to interest
payments. However, they are legally shares and are
subject to the same tax treatment.

Debentures
In law, a debenture is a document that either creates a
debt or acknowledges it. In corporate finance, the term is
used for a medium- to long-term debt instrument used by
large companies to borrow money. In some countries the
term is used interchangeably with bond, loan stock or
note. A debenture is thus like a certificate of loan or a
loan bond evidencing the fact that the company is liable to
pay a specified amount with interest and although the
money raised by the debentures becomes a part of the
company's capital structure, it does not become share
capital.

Debentures are generally freely transferable by the

debenture holder. Debenture holders have no rights to
vote in the company's general meetings of shareholders,
but they may have separate meetings or votes e.g. on
changes to the rights attached to the debentures. The
interest paid to them is a charge against profit in the
company's financial statements.

Bonds
In finance, a bond is a debt security, in which the
authorized issuer owes the holders a debt and, depending
on the terms of the bond, is obliged to pay interest (the
coupon) to use and/or to repay the principal at a later date,
termed maturity. A bond is a formal contract to repay
borrowed money with interest at fixed intervals.[1]
Thus a bond is like a loan: the holder of the bond is the
lender (creditor), the issuer of the bond is the borrower
(debtor), and the coupon is the interest. Bonds provide the
borrower with external funds to finance long-term
investments, or, in the case of government bonds, to
finance current expenditure. Certificates of deposit (CDs)
or commercial paper are considered to be money market
instruments and not bonds.

Bonds and stocks are both securities, but the major

difference between the two is that (capital) stockholders
have an equity stake in the company (i.e., they are
owners), whereas bondholders have a creditor stake in the
company (i.e., they are lenders). Another difference is that
bonds usually have a defined term, or maturity, after
which the bond is redeemed, whereas stocks may be
outstanding indefinitely. An exception is a consol bond,
which is a perpetuity (i.e., bond with no maturity).

Bonds vs. debentures

When it comes to income and debts, bonds and
debentures must be considered. Both bond and debentures
belong to the classification of fixed income instruments.
Holders of these instruments get the fixed income through
the payments of interest. The interest will depend on the
principal amount of purchase. It is very important to know
the use and sources of these two. It is also very important
to know the difference between these two either. Having
the right information on these two instruments will
definitely keep your money safe.
Current interest rates indicate the prices of bonds and
debentures. These rates are constantly fluctuating. Their

prices are affected by many factors. One of the most

important factors that affect these rates is the future
prediction of inflation. During the rise of inflation, the
prices of the fixed income fluctuate. Other factors that
affect the prices of these instruments are general terms,
level of supply and demand, attractiveness of the issuer,
and other bond features.
Bond and debentures have different types of uses and
comes from different sources. Their stamp duty and how
they trade also differ. Bonds are more secured when it
comes to default by the issuer. This is because, bonds
issued by the government. On the other hand, debenture
holders are in more risk because they do not have
resource to asset. This is risky when debenture issuers
come to a default, this is because debentures are issued by
companies, unlike bonds.
Bonds are long-term debt securities issued by the
government. Bonds may also be undertakings owned by
the government or other development financial
institutions. When instruments like these are issued by
other sources such as companies and other entities, then it
is called a debenture.
Government bonds are usually issued in auctions. This is
called a public sale where members bid for the
instrument. The price and the coupon are important
factors in determining the percent return of the bond.

Private placement bond may also be done, because having

an auction may get prohibitive. In this case, lender will
not delve in to the larger bond market.
On the other hand, debentures are levied by two kinds of
stamps. These stamps are called viz issuance and transfer.
This has been going on for years. Transfer is paid to the
state where the company who issued the debenture is
located. Transfer is the biggest and most popular way in
trading debentures. Issuances are done in connection with
mortgage creation.
Bonds and debentures actually have the same features.
They are both instruments for fixed income. The major
difference between the two is the issuer which makes
debentures riskier compared to bonds (although you still
cant be assured that government bonds are less risky).
But both are really great sources of fixed income
nonetheless.
SUMMARY:
1.
Bonds are more secured, while debentures are more risky.
2.
Bonds are issued by the government while debentures are
issued
by
companies.
3.

Bonds are done by bidding or private placement bonds,

while debentures are done through transfer and issuance
by mortgage.