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4)What are hybrid instruments. Discuss why there is a need to have a wider choice of hybrid instruments that would provide flexibility in terms of control and holding .(250 words)

Topic: Investment models. Science and Technology- developments and their applications and effects in everyday life Achievement of Indians in science & technology; indigenization of technology and developing new technology.

4)What are hybrid instruments. Discuss why there is a need to have a wider choice of hybrid instruments that would provide flexibility in terms of control and holding .(250 words)

Economic times

Investopedia

Wikipedia

 

Why this question

Raising financial capital is a critical step in operationalization and success of any startup. Indian startups have been facing problems in raising capital and dearth of hybrid securities catering to the needs of the investors and entrepreneurs alike is one of the main reasons behind that. In this regard,the GoI has decided to introduce more sorts of hybrid securities in Indian financial market. The question is related to GS-3 syllabus under the following heading-

Investment models. Science and Technology- developments and their applications and effects in everyday life Achievement of Indians in science & technology; indigenization of technology and developing new technology.

Key demand of the question

The question wants us to describe the meaning of hybrid securities, their purpose and need in the context of Indian financial market.

Directive word

What- we have to provide a brief and complete-in-meaning description of hybrid securities.

Discuss- We have to write in detail about the need to have more kinds of hybrid securities in Indian financial market.

Structure of the answer

Introduction- define hybrid securities/ instruments, along with examples of a few hybrid securities e.g  convertible bonds, preferred stocks etc.

Body- Discuss in points about the need for providing flexibility in terms of ownership and holding and how customized financial instruments will help in that regard, so that foreign and domestic investment is spurred. E.g need for attracting foreign investment, providing entrepreneurs with necessary capital, existence and exploitation of different hybrid instruments in countries like China, US etc, innovation in finance is required to cater to industry’s needs and to create meaningful employment etc.

Conclusion– mention that as per existing regulations, only equity based instruments, that is, instruments vesting ownership rights on the holder are allowed under FDI, which needs to be changed and new types of hybrid securities introduced.