What are Warrants and Its Types

A warrant can be defined as a call option to buy a specific number of shares; they are normally attached to bonds or debentures as sweetener allowing the issue of the debenture to pay low interest rate. They are like calls because they allow the owner of the warrants to buy a fixed number of shares at a price which is fixed in advance for a particular period of time. It expires after a specific time period which is communicated to the holders of warrants in advance, however there are certain companies which issues perpetual warrants implying that they never expire.

Warrants can be equity warrants, which can be Callable warrants which give the right to buy the underlying securities to the person holding or it can be Putable warrants which give the right to sell the underlying securities to the person holding it. Apart from equity warrants there are Covered warrants also which can be defined as a warrant that has some underlying backing or guarantee from the issuer of the warrant. Apart from these there also warrants like naked warrants, detachable warrant, index warrant etc…

Hence warrant are appropriate for investors who want to take benefit of safety of debentures as well as appreciation in the form of equity shares.

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