Looking for the answer to the question below related to Financial Management ?
Debenture trading is ————- in India.
Options:
| A. popular B. not popular C. prohibited D. none of these |
The Correct Answer Is:
- B. not popular
The correct answer is B. not popular. Debenture trading in India is not as widespread or popular as other forms of securities trading, such as stocks or government bonds. Several factors contribute to this relative lack of popularity, making option B the correct choice. Let’s explore why this answer is accurate and why the other options (A. popular, C. prohibited, and D. none of these) are not correct:
Why Option B (Not Popular) is Correct:
1. Limited Awareness:
One of the primary reasons for the relatively low popularity of debenture trading in India is the limited awareness among investors, particularly retail investors. Stock markets and equity investments tend to dominate the financial news and discussions, overshadowing debt instruments like debentures.
2. Preference for Equity:
Indian investors traditionally show a stronger preference for investing in equities (stocks) rather than debt instruments. The potential for higher returns in the stock market often attracts investors more than the fixed interest payments associated with debentures.
3. Complexity:
Debenture trading may be perceived as more complex compared to trading in equities. Debenture terms, covenants, and structures can vary significantly, making it challenging for investors to understand and assess these instruments.
4. Market Size:
The Indian corporate bond market, which includes debentures, is smaller in comparison to the stock market. A smaller market size can result in reduced liquidity and trading activity, making debentures less appealing to investors seeking active trading opportunities.
5. Risk Perception:
Some investors may view debentures as riskier than other fixed-income instruments like government bonds. While debentures are issued by corporations and may carry credit risk, government bonds are often perceived as safer, leading investors to prefer them.
Why Option A (Popular) is Not Correct:
Option A suggests that debenture trading is popular in India, which is not accurate. As explained earlier, debenture trading is not as popular or widespread as equity trading. It is overshadowed by stock market investments in terms of media attention, investor preference, and overall trading activity.
Why Option C (Prohibited) is Not Correct:
Option C implies that debenture trading is prohibited in India, which is not the case. Debenture trading is not prohibited but rather less popular due to the reasons mentioned above. The Indian regulatory authorities, such as the Securities and Exchange Board of India (SEBI), oversee and regulate debenture markets to ensure transparency and investor protection.
Why Option D (None of These) is Not Correct:
Option D suggests that none of the provided options (A. popular, B. not popular, C. prohibited) is correct. However, as explained earlier, option B (not popular) accurately reflects the state of debenture trading in India. Debenture trading exists but is not widely popular compared to other investment options.
In conclusion, the correct answer is B. not popular because debenture trading in India faces challenges related to limited awareness, investor preference for equities, complexity, market size, and risk perception.
While debenture trading is not prohibited, it is not as popular as other forms of securities trading in the Indian financial market. Investors looking to diversify their portfolios and explore debt investments may consider debentures, but they are not as commonly traded or discussed as equities in India’s financial landscape.
