Capital Market

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

Ownership securities

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

Features of preference shares

Features

Maturity

Claims on income

Control

Claims on assets

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

Creditorship securities

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

Features of Debentures

Maturity

Claims on income

Claims on assets

Control

SECONDARY

MARKET

* 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

Listing of securities

Evaluation of securities

Platform for public debt