NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market
A client of a depository participant asks which type of capital market instrument represents a loan to the issuer, pays a fixed coupon and gives no ownership rights in the company. Which is the best answer?
A debenture is the instrument that represents a loan to the issuer. The holder is a creditor who receives fixed interest and repayment of principal, and gets no ownership or voting rights in the company, unlike an equity shareholder.
- ADebentureCorrect
- BEquity share
- CPreference share with voting rights equal to equity
- DRights entitlement
Explanation
A debenture is a debt instrument: the holder is a creditor receiving interest and principal, not an owner. Equity shares and rights entitlements relate to ownership, and the preference option is described as having equity-like voting rights, so it is not a pure loan.
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