Securities; meaning, types, shares, stocks, bonds, gilt-edged and debentures. - SS3 Commerce Lesson Note

Securities are documents or instruments that represent an ownership interest or a creditor relationship. They are bought and sold in financial markets, such as stock exchanges, to raise funds for companies or governments. Investors purchase securities as a means to invest their money and potentially earn returns.

 

Shares and Stocks:

Shares and stocks are terms often used interchangeably. They represent ownership in a company. When you own shares or stocks of a company, you become a shareholder, which means you have a claim on the company's assets and earnings. Shareholders have the right to receive dividends (profits distributed by the company) and to vote on certain matters related to the company's operations.

 

Bonds:

Bonds are debt securities issued by governments or companies to borrow money from investors. When you buy a bond, you are essentially lending money to the issuer. In return, the issuer promises to repay the principal amount at a specified maturity date and to pay periodic interest payments to the bondholders. Bonds are generally considered lower risk compared to stocks and can provide a fixed income stream.

 

Gilt-Edged Securities:

Gilt-edged securities, also known as gilts or government bonds, are debt securities issued by governments, specifically by the Treasury. They are considered low-risk investments because they are backed by the government's creditworthiness. Gilt-edged securities often pay fixed interest payments and have a specific maturity date when the principal is repaid.

 

Debentures:

Debentures are long-term debt securities issued by companies to raise capital. They are similar to bonds but are not backed by specific assets. Debenture holders are considered creditors of the company and have a claim on the company's assets in case of bankruptcy. Debentures typically pay interest to investors and have a specified maturity date for repayment.