5.Other capital instruments

5.1 Spot Exchanges

It is electronic trading platform which facilitates purchase and sale of specified commodities like agricultural, metals, bullion by providing spot delivery contracts in these commodities. 

The facilities include clearing and settlement of trade and other services such as quality certification, warehousing, warehouse receipt financing etc. there are 4 spot exchanges operating in India:

1. National spot exchange ltd (NSEL)
2. NCDEX spot exchange ltd
3. Reliance spot exchange ltd
4. Indian bullion spot exchange ltd.

5.2 Foreign Financial Investment

India opened its capital market for foreign portfolio investment (FPI) / Foreign institutional investment (FII) in 1994. It is one of the biggest drivers of India’s financial markets. It is regulated by SEBI, but the ceiling of investment is kept by RBI. SEBI classifies FPI’s into 3 categories:

Category I – government entities/ institutions investing in Indian security market o behalf of the central bank

Category II – financial institutions, mutual funds, which are duly regulated by the country of their own

Category III – other financial institutions.

Regulations of SEBI for FPIS:

1. Direct overseas listing of Indian companies is allowed.
2. The Know your customer is relaxed.
3. They can participate in commodities market.
4. FPIs are allowed to invest up to 25% in category III Alternative investment funds
5. FPIs are allowed to invest in REITS and IVITS.

5.3 Participatory Notes

P-Notes are a derivative instrument in foreign jurisdiction by a SEBI regulated FII, against Indian securities. (Equity, bond, derivative or even index). They are known as overseas derivative instrument.  They holders of it do not own the underlying security. They do not enjoy any voting rights in the company.

5.4 Hedge Funds

Hedge funds are free floating capital which moves swiftly towards the more profitable sectors of the economy. Primary aim of hedging is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.

5.5 Credit default Swap

It is a credit derivative that can be used to transfer credit risk from the investor exposed to the risk to an investor willing to take risk. It is a credit derivative transaction in which 2 parties enter into an agreement whereby one party (the protection buyer) pays the other party (Protection seller) periodic payments for the specified life of the agreement. It is similar to an insurance policy.

5.6 Inflation indexed bonds

RBI introduced Inflation indexed bonds to protect the investors from inflation. It provides returns that are always in excess of inflation, ensuring that price rise does not erode the value of savings.

5.7 Gold exchange traded funds (ETF)

These are open ended mutual fund schemes hat closely track the price of physical gold.

5.8 CPSE ETF

The central public sector enterprise exchange traded fund comprises the share of 10 blue chip PSUs. ETF is the security that tracks an index, a commodity or basket of assets such as an index funds, but trades like stock.