Semi-Government Securities

The semi-government securities are issued by semi-government bodies such as Port Trust, Improvement Trust, and Municipalities. They include port trust bonds, improvement trust bonds and municipal bonds.

Bearer Bonds

Bearer bonds vest the ownership with the person who is having mere possession of it. The transfer of such securities can be made by mere delivery. If it is lost, the owner loses all his rights or title to it.

Public Sector Undertaking Bonds

The pubic sector undertaking bonds are debt instruments issued by various public sector units such as Indian Railway Finance Corporation. Nuclear Power Corporation of India, Coal India Ltd. And, Power Finance Corporation. These bonds have seven-year maturity and are normally secured against fixed or floating charge on fixed assets, book debts or other current assets.

Stock Certificates or Inscribed Stock

The stock, where the name of the stock holder is inscribed or recorded in the register kept by the public Dept Office, is called inscribed stock. The stock certificate issued to the holder or the stock shows that he has been registered as the owner of a certain amount of government stock. The title of these stocks cannot be transferred by mere endorsement. A transfer deed will have to be executed for the purpose of transferring it. It is to be executed in a form available in the Public Debt Office. It does not involve any stamp duty. When the transfer deed is executed, the transferee’s name is substituted in the place of the transferor in the books of the Public Debt Office. The ownership of the securities is transferred only when the transfer is effected in the register maintained by the Public Debt Office. A stock certificate is, thus, completely secured against loss by fire, theft, and so on. The interest payments are done through interest warrants issued by the Public Debt Office.

Promissory Notes
The government promissory notes are negotiable securities issued by the Central or State Governments. These contain promise by the President of India, or the Governor of the State, for the payment of principal and interest. These are negotiable instruments payable to the order of specified persons and transferable by endorsement and delivery.

Government Securities

The government securities are classified into Central Government securities, State Government securities, the securities guaranteed by the Central Government for all India financial institutions such as IDBI, ICICI and IFCI; the securities guaranteed by State Governments for such state institutions as State Electricity Boards and housing boards; and the treasury bills issued by the Reserve Bank of India.
The government securities are held mainly in three forms, namely:

1. Stock certificates or Inscribed stock
2. Promissory notes
3. Bearer bonds

The government securities are issued in denominations of Rs. 100. The interest is payable half- yearly. These securities can again be classified on the basis of their duration as; long-dated, medium-dated and short-dated. The long-dated securities have maturities exceeding 10 years, the medium-dated securities have between 5 and 10 years and the short-dated securities mature within 5 years.

GILT-EDGED SECURITIES

Gilt-edged securities are thus referred to, because the repayment of principal and interest is totally secured by a first charge on the nation’s purse. These securities are broadly classified into government and semi-government securities.

Classification

Debentures may be classified on the basis of conversion, security, repayment of capital and transfer, which are briefly explained below.

Conversion. On the basis of debentures are classified into convertible and non-convertible debentures. The convertible debentures give the holder an option to convert them into equity shares during a specified period at a particular rate whereas the non-convertible debentures cannot be converted into equity shares.

Security. On the basis of security, debentures are classified as unsecured or naked and secured. When the debentures are issued without any charge on the assets of the company it is called unsecured or naked debentures. When a charge is made on the assets of the company, it is called secured debentures. The charge may be either floating or fixed. When the charge is floating, a company is free to deal with the assets forming the subject-matter of the charge until the said charge gets fixed. A company can even mortgage such property in priority of the floating charge. Then, the claims of debenture holders come after the preferential creditors but before the unsecured creditors.
Under fixed charge, a specific asset or group of assets or property is pledged as security.

Repayment. On the basis or repayment of capital, debentures many be classified as redeemable and irredeemable. Redeemable debentures provide for the payment of the capital on a specified date or on demand. In the case of irredeemable debentures, the company does not fix any date for the repayment of capital. The holders of such security cannot demand repayment of the capital amount so long as the company is a going concern.

Transfer. Debentures of companies are transferable. On the basis, debentures are classified as bearer debentures and registered debentures. Bearer debentures are transferable by mere delivery whereas a registered debenture can be transferred only by registering the transfer with company.

Features

A fixed rate of interest is paid on debentures. The maximum interest payable on these debentures was 14% till recently. But now it has been relaxed.
2. The interest gained on them is fully taxable.
3. Redeemable at a premium
4. Secured by a charge on immovable properties-present and future.
5. Traded on the stock exchanges.