In the former times and days before we came to this electronic era of these times when you made an investment of some kind, you would be issued with a paper certificate or a note of some sort. It is these paper certificates or notes that did serve as documentation for the investment that the investors had made in the particular venture and as well they did outline the terms of the investment. These paper certificates or notes actually served as proof of the investment made in the venture and as well they were as well known as securities. By the way, these paper securities could just be sold and bought in the same way that we it happen in the sale and purchase, trading, of the shares, bonds and stocks of the many mutual funds we have today.
Fast forward to this day and we have the term “securities”. Now, talking of securities as it is commonly used and known today, this term is one that is used in reference to any form of financial instrument, negotiable financial instrument, of any kind, from the stocks, bonds, shares of a mutual fund or options of contract. This may somehow still sound mind boggling and as such it may be advisable for you to consider thinking of the term “securities” to be interchangeable in use with “investment” and the “securities market” to be equally interchangeable with the “capital market” or simply “the market”. Securities generally fall into three main categories. These are the debt securities, the equity securities and the derivative securities.
Debt securities are as well known as bonds. Oftentimes, business have to borrow money for their needs to grow and expand operations and these in most cases come through the traditional banks lending schemes. As a result of the fact that banks as well are not ready to take so much risk, they will have some limits on the much that they will be ready and willing to advance a business as a loan. To get the extra there may be in need, the business will then have to go to the capital markets authority and issue a debt security known as a bond. Now, as an investor, when you buy a bond, you are basically lending money to a company and they owe it back to you. Added to this, you are as well to be paid interest for the much lent and this is your earning from the investment as an investor.
Over and above these, there are the equity securities as the other category of securities to know of as an investor as well known as stocks. Equity securities or stocks come in where a business seeks funding for the growth and expansion projects by bringing on board additional investors, who may be private investors or where they go to the capital markets and issue securities in the form of publicly traded shares or stocks.