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

A broker's client, Mr. Iyer, wants to invest in a security that is a direct claim on a company's ownership, carries voting rights in general meetings and has no fixed maturity. Which instrument fits all three features, and which feature would distinguish it from a debenture?

An equity share fits, since it represents ownership, normally carries voting rights and has no fixed maturity. A debenture differs because it is a debt instrument that makes the holder a creditor, with interest and repayment, but without ownership or ordinary voting rights.

  1. AEquity share; it gives ownership and voting rights unlike a debenture, which is a debt claimCorrect
  2. BDebenture; it gives ownership and voting rights unlike an equity share
  3. CPreference share; it carries a fixed maturity and normal voting rights
  4. DTreasury bill; it gives ownership and voting rights in the issuer

Explanation

Equity shares represent ownership, normally carry voting rights and have no maturity. A debenture is a debt instrument representing a creditor relationship, with no ownership or ordinary voting rights. Preference shares usually lack ordinary voting rights, and treasury bills are government money market debt.

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