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CLASSIFICATION OF CAPITAL MARKET INSTRUMENTS

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We can classify all Capital Market Instruments into three Categories: 

Pure Instrument: It is a financial instrument which is created without mixing the properties/features of any other financial instruments. In other words, it is a financial instrument which is being issued by the issuer (Company/Government) with original features. 

Example: Equity shares, preference shares, debentures and bonds which are being issued with their basic features intact without mixing features of other instruments. 

Hybrid Instrument: (June 2009) It means a financial instrument which is created by mixing of features of two or more types of financial instruments. It has dual character like debt may be issued with the features of equity or equity may be issued with the features of debt. 

Example: Convertible preference shares, Cumulative convertible preference shares, Convertible debentures, partly convertible debentures and warrants convertible into debentures. 

Derivatives Instruments: It is a financial instrument whose value is based on another security. Derivative is a contract which derives its values from value of other assets. In other words, it does not have value and totally dependent upon other instruments or moveable or immoveable assets. 

Example: Futures, Option, swap and Forward etc.

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