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Capital Market
• Institutional arrangement for lending and borrowing of long term funds.
• Consists of series of channels through which the savings of the community are made available for industrial and commercial enterprises and public authorities.
Functions
• Mobilization of financial resources on a nation wide scale.
• Leads to economic growth at a faster rate.
• Directs the flow of savings into most profitable channels
Primary Market Or New Issue Market
• Primary market is a market for raising long term sources of finance.• New securities that have never been previously
issued are offered.• Both the new and existing companies can raise
capital from this market.• Facilitate the transfer of funds from willing
investors to entrepreneurs setting up new companies or going in for expansion, growth or modernization.
Securities dealt in primary market
Securities
Ownership securities
Equity Shares
Preference shares
No par stock
Creditorship securities
Debentures
1. Equity Shares
• Equity shareholders are the real owners of the company.• Have a control over the working of the company.• Paid dividend after paying it to preference
shareholders.• Rate of dividend depend upon the profits of the
company.• No dividend in case of no profits.• Cannot be redeemed during the lifetime of the
company.
Characteristics of equity shares
Maturity Right to income
Claims on assets Voting rights
Pre-emptive right
2. Preference Shares• These shares have certain preferences as compared to
other types of shares.• Fixed rate of dividend is paid on preference share capital.
2 Preferences
Preference for payment of dividend Repayment of capital
Types of preference shares• Cumulative preference
shares• Non-cumulative
preference shares• Convertible preference
shares• Non-Convertible
preference shares• Redeemable preference
shares• Irredeemable preference
shares• Participating preference
shares• Non-Participating
preference shares
3. No Par Stock
• Shares having no face value• Capital of the company issuing such shares is divided
into a number of specified shares without any specific denomination• Share certificate of the company states number of shares
held by the owner without mentioning any face value• Value of such share determined by dividing the real net
worth of the company with the total number of shares of the company• Dividend is paid on per share
Debentures or Bonds
• It is a document under the company’s seal which provides for the payment of a principal sum and interest thereon at regular intervals.
• Debentureholder is the creditor of the company.• A fixed rate of dividend is paid on the
debentures.
Types of Debentures
Unsecured debentures
Secured debentures
Redeemable debentures
Convertible debentures
Irredeemable debentures
* Stock market represent the secondary market* Existing securities are traded* Organized mechanism for purchase and sale of
existing securities* Allow trading in securities both to genuine investors
and speculators.
“Stock exchanges are market places where securities that have been listed thereon may be bought and sold either investment or speculation.”
DEFINITION
Place where securities are bought and sold
Trading is strictly regulated and rules and regulations prescribed for various transactions
Both genuine investors and speculators buy and sell shares
Securities of corporations, trusts, govt. etc allowed to be dealt at stock exchanges
Characteristics
Ensure liquidity of capital
Continuous market for securities
Mobilising surplus savings
Safety in dealings
Functions of Stock Exchange
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