What are marketable securities? (2022)

First, let us try to understand the term ‘securities’ before proceeding further. Financial instruments which are tradable or that can be bought and sold are generally referred to as securities.

What are marketable securities?

For example – Shares, Bonds, etc.

In India, the word “securities” is defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (SCRA). As per this definition, the term securities includes –


  • Shares, scrips, stocks, bonds, debentures, debenture stock, or other marketable securities of a like nature in or of any incorporated company or other body corporate.
  • Derivatives.
  • Units or any other instrument issued by any collective investment scheme to the investors in such schemes.
  • Units or any other such instrument issued to the investors under any mutual fund scheme but does not include any unit-linked insurance policy which is a hybrid instrument providing for life risk cover and investments.
  • Security receipts issued under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI Act).
  • Securitized debt instruments (collateralized debt obligations etc.)
  • Other such instruments may be declared by the Central Government to be securities.
  • Rights or interest in securities.

In layman’s terms, the types of securities in which one can invest money include –

2. Government Securities (Bonds)
3. Debentures
4. Units of Mutual Funds
5. Commodity Derivatives

Features of Securities:

1. A security represents the terms of exchange of money between two parties – i.e., issuer and investor. Securities are issued by companies, financial institutions, or the government and are purchased by investors.

2. Security issuance allows the issuer to raise money at a reasonable cost while its purchase allows the investor to invest his savings to get a better return.

3. The issue of security provides the terms on which the capital is being raised.

4. The investor in the security has a claim to the rights represented by the securities. These rights may include ownership, participation in company affairs and
management or claim on the company’s assets.

Now depending on the terms of issuance, the rights of investors, risk and return associated, securities can broadly be classified into two broad types – Equity and Debt.


Equity capital refers to the capital provided by the owners of the business, who are willing to take the risk associated while investing in a business. The total equity capital of a company is divided into equal units of small denominations, each called a Share.

The holders of such shares are members of the company and have voting rights. Thus share represents the form of fractional ownership in a company.

Such ownership is represented by a Share Certificate. However, in today’s computer age, you won’t actually get to see this document because today shares are held electronically in Demat Account.

Investors can purchase these shares either via an Initial Public Offer (IPO) when the company raises money and offers shares to the public for raising capital or from the secondary market via Stock Exchange i.e. when you buy shares from its previous holder.

Remember – whether you say shares, equity, or stock, it all means the same thing.


Debt capital refers to the capital provided by the lenders to the owners of the business, with pre-determined terms with respect to payment of interest and principal amount. Such lenders are not willing to take the risk associated with running a business.

In simple words, a debt instrument is a contract whereby one party lends money to another on pre-determined terms with regard to the rate and periodicity of interest and repayment of the principal amount by the borrower to the lender.

In the Indian securities market, the term ‘Bond’ is used for debt instruments issued by the central and state governments used for instruments issued by private companies.

Securities Market:

The Securities Market is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures, etc.

It performs an important role in enabling corporates and entrepreneurs to raise resources for their companies and business ventures through public issues.

It also enables the effective and efficient transfer of resources from those having idle resources (investors) to others who have a need for them (corporate and entrepreneurs).

The securities market has two independent and inseparable segments, viz., the primary market and the secondary market.

We shall discuss both the primary market and secondary market in different chapters ahead in this book.

Participants of the Securities Market:

There are three broad categories of participants in the securities market – issuers, investors, and intermediaries.

Issuers issue securities to raise capital while investors buy these securities to invest their surplus money, and thereby provide the capital to the issuers. However, it is the intermediaries who facilitate interaction and coordination between the issuers and investors.


Issuers are organizations that raise money by issuing securities. They include private companies, central and state governments, public sector companies, financial institutions and banks, mutual funds, etc.

They issue securities in form of debt or equity depending on whether they need capital for short-term or long-term and their ability to meet the obligations to the investors, and the cost they are willing to pay to raise the capital.


Investors are the ones who purchase securities with the objective of getting better returns. They may include retail investors or institutional investors.

Retail investors refer to individuals who invest money in their personal accounts while institutional investors are organizations like public and private companies, banks, government organizations, mutual funds, insurance companies, pension funds, trusts, and associations, etc who invest large sums of money, employing people who have specialized knowledge and investment skills.


Intermediaries are the ones who facilitate the interaction and co-ordination between the issuers and the investors.

Without their services, it would be quite difficult for issuers and investors to locate each other and carry out transactions. Hence, they are a very important link in the securities market.

According to the SEBI (Intermediaries) Regulations, 2008, the following are the intermediaries associated with the securities market –

  • Stockbrokers and sub-brokers
  • Share transfer agents
  • Bankers to an issue
  • Registrars to an issue
  • Merchant bankers
  • Underwriters
  • Trustees of trust deeds
  • Portfolio managers
  • Investment advisers
  • Depositories and depository participants
  • Custodians of Securities
  • Credit rating agencies
  • Asset management companies
  • Clearing members
  • Trading members
  • Any other intermediary who may be associated with securities markets in any manner.

Regulators of Securities Market:

The Securities Exchange Board of India (SEBI) is the chief regulator of the securities market in India. Apart from SEBI, the responsibility of regulating the securities market is also shared by the Reserve Bank of India (RBI), the Department of Economic Affairs (DEA) of the Ministry of Finance, and the Ministry of Corporate Affairs (MCA).

SEBI (Securities Exchange Board of India):

SEBI is a statutory body appointed by an Act of Parliament (SEBI Act, 1992) and it functions under the Ministry of Finance.

SEBI acts as a watchdog for all the capital market participants and its main purpose is to provide such an environment for financial market enthusiasts that facilitate the efficient and smooth working of the securities market.

The basic role of SEBI includes –

  • Protecting the interests of investors in securities.
  • Promoting the development of the securities market.
  • Regulating the securities market.

Its regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with the securities market.

Functions of SEBI:

  • Protect the interests of investors in the securities market.
  • Promote the development of the securities market.
  • Regulate the business in stock exchanges and any other securities markets.
  • Register and regulate the working of intermediaries associated with securities markets.
  • Register and regulate the working credit rating agencies.
  • Promote and regulate self-regulatory organizations.
  • Register and regulate the working of venture capital funds and collective investment schemes like mutual funds.
  • Prohibit fraudulent and unfair trade practices relating to securities markets.
  • Promote investor education and training of intermediaries of securities markets.
  • Prohibit insider trading in securities.
  • Regulate the functioning of the primary market.
  • Regulate substantial acquisition of shares and takeover of companies.
  • Conducting research for efficient working and development of the securities market.
  • Perform such other functions as may be prescribed.

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