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Finance GlossaryBook Entry Securities
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Book Entry Securities

Definition of Book Entry Securities

Book entry securities are financial instruments like stocks, bonds, ETFs, and others whose ownership is recorded and tracked electronically. Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

Book entries have made ownership certificates obsolete as they track who owns what electronically.

The trades are settled by the depository like NSDL or CSDL which sends the buyer a statement confirming ownership.

Related Terms

Dividend Per Share

Dividend per share indicates the amount of dividends paid as a ratio of the number of shares outstanding. Or, dividend per share could also refer to the product of earnings per share and dividend payout ratio.

Thus, the formula to calculate dividend per share is:

DPS: Total dividend amount / Number of shares outstanding

Or

DPS: Earnings Per Share x Dividend Payout Ratio

An investor can determine how much dividends they stand to earn for each share they own by calculating dividends per share.

Book Building

Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

Book building is typically done by an underwriter (like an investment bank) who will invite institutional investors like hedge funds, mutual funds, and others to submit bids for the financial instrument.

These bids act as a range that the underwriter can use to fix a price that satisfies the company issuing the security and market participants.

Assets And Liabilities

An asset is something that has monetary value and can generate profits in the future while a liability is a debt that’s repayable immediately or in the future. Assets are owned whereas liabilities as owed.

Convertible Bonds

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:

  • Don’t convert bond: face value of the bond is transferred to the holder on maturity
  • Capital Gains Tax

    Capital gains are profits, which means they can be taxed. The rate of taxation is based on the type of asset (debt/equity) and holding period. Here is the list of ways capital gains are taxed in India:

    Asset Type Gains Type Holding Period Tax Rate
    Equity Short Term Capital Gains < 1 year 15%
    Long Term Capital Gains > 1 year 10%
    Debt Short Term Capital Gains < 3 years As per I-T slab
    Long Term Capital Gains > 3 years 20%

    Benchmark

    A benchmark is a standard used by investors to compare the performance of a stock, commodity, or other securities.

    Stock indices like Nifty 50, Sensex, Nifty Bank, and others are often used as benchmarks to evaluate the performance of one or more stocks.

    The onset of a bear market is generally in tandem with poor economic conditions.

    Benchmarks are not just used for evaluating markets or securities, they can also be used to assess the performance of an investor or wealth manager. Here are some outcomes if the returns are:

    • Greater than benchmark: the asset is doing considerably well (great)
    • Same as benchmark: the asset is moving with the market (okay)
    • Less than benchmark: the asset is performing poorly (bad)



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