Explaining Warrants In 2 Minutes

  Author: Jai Prakash

New stock market investors might come across the term warrants on and off. Here is brief primer about warrants that will take no more than 2 minutes for you to read.

Warrants defined Warrants are instruments or certificates issued by companies. They entitle the holder to buy the common shares of that company at a fixed price called exercise price. within specified period of time. To understand let us take an example.

In October 2015, HDFC issued 3.65 cr warrants at Rs 14 each, giving holder the right to exchange one warrant for one equity share in the next three years at a pre-fixed price of Rs 1,475. Thus, a warrant holder has a right but no obligation to buy HDFC shares for Rs 1,475 within next three years. The investor can only profit from this instrument if the price of HDFC trades above Rs 1,475 within next three years, otherwise he loses Rs 14. In India, mostly warrants are issued by companies mostly to promoters so as to enable them to up their stake in the company.