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NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market

Ms. Kapoor wants to understand the key difference between the equity market and the debt market in India. Which statement is correct?

Equity represents ownership in a company, with residual claims on profits and usually voting rights, while debt securities represent money borrowed by the issuer, carrying a promise of interest and repayment of principal. The other statements wrongly reverse these characteristics of equity and debt.

  1. AEquity represents ownership in a company, whereas debt securities represent a borrowing by the issuer with a promise of interest and repaymentCorrect
  2. BEquity holders are lenders to the company, whereas debt holders are owners
  3. CDebt securities carry voting rights on company decisions, whereas equity does not
  4. DEquity provides a fixed contractual return, whereas debt gives only residual profits

Explanation

Equity shareholders are owners with residual claims and voting rights, while debt instruments such as bonds and debentures are borrowings that promise interest and principal repayment. The other options reverse these features.

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