Warrants are financial instruments that give the holder the right, but not the obligation, to buy or sell a company’s shares at a predetermined price before a specified expiry date. They are similar to options but are generally issued by the company itself, often as part of fundraising or debt restructuring initiatives. Warrants are traded on stock exchanges and can be a strategic way for investors to participate in potential future growth.

In simple terms, a share warrant allows investors to purchase company shares at a fixed price in the future, regardless of the prevailing market price. This feature makes them attractive when investors expect the company’s share price to rise. However, if the share price remains below the exercise price, the warrant may expire worthless, leading to a loss of the amount invested in the warrant.

There are two main types of warrants — call warrants and put warrants. A call warrant gives the right to buy shares, while a put warrant gives the right to sell. Warrants can also be classified as covered warrants (issued by financial institutions) or naked warrants (issued directly by companies). Each type carries different risk and return profiles, making it essential for investors to understand their characteristics before investing.

Advantages of warrants include high leverage potential, lower initial investment, and exposure to a company’s performance without owning the underlying shares. However, risks include time decay, market volatility, and the possibility of total loss if the warrant expires out of the money.

Investors should always assess their risk tolerance and consult financial advisors before investing in warrants. These instruments are complex and suited for informed investors who understand derivative products and their implications under SEBI regulations.