NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market

Securities Market Instruments for NISM Series VII

Updated 11 October 2026 · Fact-checked

Securities market instruments are the financial products traded in the market. The main types are equity shares (ownership), debt securities (loans to the issuer), mutual fund units (pooled investment), derivatives (contracts whose value comes from an underlying asset) and money market instruments (debt up to one year). Solve questions by identifying the claim, return and maturity.

Understand Securities Market Instruments

A security is a financial instrument that can be issued, held and traded. Each instrument gives the holder a different kind of right. Exam questions test whether you can match the right to the instrument.

Equity shares represent ownership in a company. The holder is a part-owner, has voting rights, and gets dividends only if the company declares them. Equity has no fixed return and no maturity. In a winding up, equity holders are paid last, after all creditors and preference shareholders.

Debt securities are loans. The investor lends money to the issuer, who pays interest (coupon) and returns the principal at maturity. Examples are government securities, corporate bonds and debentures. Debt holders are creditors, not owners, and have no voting rights. They rank ahead of equity holders on liquidation.

Mutual fund units represent a share in a pool of money invested by a fund in equity, debt or other assets. The value of a unit is the fund's NAV (net asset value per unit). Derivatives are contracts whose value is derived from an underlying such as a share, index, currency or commodity. The main types are forwards, futures, options and swaps. Money market instruments are short-term debt with original maturity of up to one year, such as treasury bills, commercial paper, certificates of deposit and call money.

Key formulas to remember

Equity vs debt claim: Equity = ownership (residual claim); Debt = creditor (fixed claim); On liquidation, creditors are paid before preference shareholders, who are paid before equity holders.
Money market limit: Money market = original maturity ≤ 1 year; Instruments longer than one year belong to the capital (debt) market.
Mutual fund NAV: NAV per unit = (Market value of assets − Liabilities) ÷ Number of units outstanding; Units are bought and sold at NAV-based prices, not at market-driven prices as with shares.
Treasury bill pricing: Price = Face value ÷ (1 + yield × days ÷ 365); T-bills are issued at a discount and redeemed at face value. They carry no coupon.
Futures vs options: Futures: obligation for both parties; Options: right for buyer, obligation for seller; Option buyer pays a premium and can let the option lapse. Option seller (writer) receives the premium.
Call and put: Call = right to buy; Put = right to sell; Both are at an agreed strike price on or before expiry.

How to solve Securities Market Instruments questions

Use this method for any question that asks you to identify, classify or compare instruments.

1Read the question and underline the key feature: ownership, loan, pooled fund, contract or short-term paper.
2Decide the holder's position: owner (equity), lender (debt), unit holder (mutual fund), or contract party (derivative).
3Check the return type: dividend or capital gain (equity), fixed interest or discount (debt), NAV change (mutual fund), profit or loss on contract (derivative).
4Check the maturity: none (equity), over one year (bonds), up to one year (money market), fixed expiry (derivatives).
5Check the risk and ranking: equity is riskiest and paid last on winding up; government securities carry no default risk.
6Eliminate options that mix features, such as a debt instrument with voting rights.
7Pick the option that matches every feature, not just one.

Quickest way: Three-word tag method

When to use it: Use when you have under a minute and the options look similar.

Tag each instrument with three words: Equity = owner, residual, perpetual. Debt = lender, fixed, maturity. Mutual fund = pooled, NAV, units. Derivative = contract, underlying, expiry. Money market = short-term, discount, under one year.
Match the question's wording to a tag.
Cross out any option that contradicts a tag.
If two options remain, test the ranking on winding up or the maturity.

Common mistakes in Securities Market Instruments

Saying debenture holders are owners of the company.
The word holder is confused with shareholder.
Fix: Debenture and bond holders are creditors. Only shareholders are owners.
Treating all debt instruments as money market instruments.
Both are called debt.
Fix: Money market instruments have original maturity up to one year. Longer debt is capital market debt.
Believing an option buyer has an obligation to trade.
Futures and options are mixed up.
Fix: The option buyer has a right, not an obligation. The seller has the obligation if the buyer exercises.
Assuming dividends on equity are fixed or guaranteed.
Interest on debt is fixed, and the idea is carried over.
Fix: Dividends depend on profits and the board's decision. Interest on debt is a contractual obligation.
Thinking a treasury bill pays periodic interest.
Government securities generally pay coupons.
Fix: T-bills are zero coupon. They are issued at a discount and repaid at face value.
Thinking a mutual fund unit trades at a price set by supply and demand like a share.
Exchange-traded funds trade on exchanges and cause confusion.
Fix: Open-ended fund units are dealt at NAV-based prices. Only exchange-traded units and closed-end units listed on an exchange trade at market prices.

Worked examples

Example 1

A 91-day treasury bill has a face value of ₹1,00,000. Which statement is correct? (a) It pays quarterly interest. (b) It is issued at a discount and redeemed at face value. (c) It gives voting rights. (d) It is a capital market instrument.

Show the solution

A treasury bill is a short-term government security.
Its maturity is 91 days, which is under one year, so it is a money market instrument. This rules out (d).
It has no coupon, so (a) is wrong.
It is debt, so the holder has no voting rights. This rules out (c).
T-bills are issued below face value and repaid at ₹1,00,000, so (b) fits.

Answer: (b) It is issued at a discount and redeemed at face value.

Example 2

An investor buys a call option on a share with a strike price of ₹500 by paying a premium of ₹20 per share. At expiry the share trades at ₹540. What is the profit per share for the buyer, ignoring costs?

Show the solution

A call gives the right to buy at the strike price of ₹500.
At ₹540, the buyer exercises and gains ₹540 − ₹500 = ₹40 per share.
Subtract the premium paid: ₹40 − ₹20 = ₹20.
If the price had been ₹500 or lower, the buyer would let it lapse and lose only the ₹20 premium.

Answer: Profit is ₹20 per share.

Exam tips

Expect direct-definition questions. Learn one line for each instrument covering holder position, return and maturity.
Watch the words obligation and right. They separate futures from options and the option buyer from the seller.
Remember the liquidation order: creditors, then preference shareholders, then equity shareholders.
Negative marking applies at 25% of the question's marks. If you cannot rule out at least two options, consider skipping.
For money market questions, check the one-year maturity limit before anything else.

Practice questions from Introduction to the Securities Market

Securities Market Instruments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Securities Market Instruments: frequently asked questions

What is the difference between equity and debt instruments?

Equity gives ownership, voting rights and a variable return through dividends and capital gains. Debt is a loan that pays fixed interest and returns principal at maturity. Debt holders are paid before equity holders if the company is wound up.

What are derivatives in simple terms?

A derivative is a contract whose value depends on an underlying asset such as a share, index, currency or commodity. The common types are forwards, futures, options and swaps. They are used to hedge risk, speculate or arbitrage.

Which instruments are money market instruments?

They are short-term debt instruments with original maturity of up to one year. Examples are treasury bills, commercial paper, certificates of deposit and call money. They are mainly used for short-term funding and liquidity management.

How is a mutual fund unit different from a share?

A share is ownership in one company. A mutual fund unit is a proportionate claim on a pool of investments managed by a fund. Open-ended units are dealt at NAV-based prices, while shares trade at market prices.