What are debt securities?

For many entrepreneurs, debt securities are an excellent tool to attract the funds needed for business development. This method of borrowing finance is actively practiced in the modern world, since it is mutually beneficial for the participants in the transaction.

Considering such a financial instrument in its general form, it is possible to present two main types: debt and equity securities. Securities of the first type, in fact, are credit relations. That is, the investor acquires a document that gives him the right after a set period of time to demand a return of the invested amount taking into account the interest. A share type of securities is a contribution to the authorized capital of an enterprise or organization. In this case, the depositor can rely on a stable income, which will vary depending on the volume of profits and the number of shares. In some ways, the investor becomes a co-owner of the company.

On the stock market of our country, mainly debt securities such as bonds and bills are traded. Moreover, government bonds and independent legal entities can issue bonds. Of course, government securities are in high demand, since they are considered the most reliable. If we talk about periodicity, then the bonds are long-term, that is, they are in circulation for one year or more.

As a rule, at the end of the validity period, debt securities are returned to the issuer, which in turn pays the nominal value of the document, as well as the amount in excess of the established amount as an interest payment for the use of the loan. After the final calculation, the credit relations between the issuer and the depositor are terminated, since the mutual obligations of the parties are fully fulfilled. In addition, it is possible to single out debt securities with a floating and fixed coupon rate, which is the interest paid to the investor for the use of its capital. A fixed rate means that after a certain period the depositor will receive a predetermined amount. And with a floating coupon rate, the percentage is set for a short period of time (for example, three months or six months), after which it is recalculated again.

Debt securities are considered a fairly common way of borrowing resources, because it eliminates the need to apply to credit institutions and make out a loan. This is especially true for companies that already have a loan in the bank, and for young entrepreneurs. Investor such an investment is not less profitable, because he has the opportunity to choose the most favorable conditions for him, relying not only on the interest rate and the term, but also the level of liquidity, profitability and the degree of riskiness, which can not be done when opening a deposit account. Moreover, many investors do not trust the modern banking system, believing it is not reliable enough. In this case, they invest free cash in government bonds, because these are the most highly liquid securities, because the guarantor is the state itself.