The slides explains the meaning and features of Capital market and the important capital market instruments

1. SAJITHAMOHAN.M
ASST.PROF
DEPT. OF ECONOMICS
MES MAMPAD COLLEGE(AUTONOMOUS)

2.  Nation requres both the short term and long term funds
 The dd and ssof short term funds are met by -----------?
 Capital market caters to the long term fund needs only
 So a good cpl mkt is essential pre-requisite for industrial
and commercial dvpt of the country

3.  Central coordinating and directing mechanism for free and
balanced flow of financial resources into the economic system
operates in a country.

4.  Institutional arrangements for facilitating the borrowing and
lending of long term funds.
 It consists of a series of channels through which the savings of the
community are made available for industrial and commercial
enterprises and public authorities

5.  a market for securities where companies and the govt can
raise long term funds
 Includes the stock market and the bond market

6.  Mobilising resources and diverting them in productive
channels
 Boosts capital formation
 Make a strong link between savers and investors
 Fostering saving habits among the people
 Cpl mkt institutions allocate the resources rationally in
accordance with the dvpt needs ie; proper allocation of
resources ie;
 (promote and sustain economic growth)

7.  Facilitate stability in security prices
 Providing cpl to the borrowers at a lower interest rate
and reducing the speculative and unproductive activities
Promotion of industrial growth
Technical assistance –
Revival of sick units
Provision of variety of services
Benefits to investors

9.  On the basis of the nature of the instruments
 Two markets
 Primary market
 Secondary market

10.  New Issue Market
 Market for new issues or new financial claims
 Deals with those securities which are issued to the public for
the first time
 Market for raising fresh capital in the form of shares and
debentures

12.  The gilt –edged market
 The industrial securities market

13.  Govt securities market
 Market for govt and semi govt securities

14.  Guaranteed return on invt
 No speculation in securities
 Institutional based investors
 Predominated by LIC,GIC,PF and the commercial banks
 Heavy volume of transactions

15.  Market for corporate industrial securities
 Offers an ideal market for corporate securities such an
bonds or debentures and equities.
 It is a market for industrial securities namely equity shares,
and bonds or debentures

16.  Primary market
 Secondary market

17. CAPITAL MARKET INSTRUMENTS

18. Equity
instruments
Debt
instruments
Gets ownership
No ownership, just advances
loans

19.  Used for raising funds for business
 Broadly classified into
 1)ownership securities
 2) creditorship securities

20.  Securities which give an ownership to the
holder
 Most universal type of ownership securities
are shares.
 The capital of a company is divided into a
number of equal parts- shares.

21.  Equity shares
 Preference shares
 Deferred shares
 Right shares
 Bonus shares
 Bluechip shares
 Golden shares

22.  Bonds
 Debentures

23.  Long term and medium term security
 Long term capital to the industries
 More than one year maturity
 Functions in both primary and secondary market
 Ownership through shares
 Long term debt through bond

25.  Common share
 Buyer will get the voting right
 He will be the owner of the company
 May become the director of the company
 Gets dividend only after fulfilling all liabilities of the company

26.  Common or ordinary shares
 It generally form a large part of the total
shares issued by a company
 The return is not fixed rather it may vary
from year to year.
 It depends on the profit of the company.

27.  If the company’s level of profit is high,
equity shareholder enjoys very high return.
 They have the right of control over the
management of the company.
 The holders are members of the company
and have voting rights.
 It is paid after meeting all other claims .

28.  Special type of share
 Buyer will not get voting right
 He will not be the owner
 Will not become director board member
 Have preference in getting dividend
 Gets dividend before equity share holders

29. Equity share
Right share
Bonus share
Blue chip share
Common share

30.  A rights issue is an invitation to existing shareholders to
purchase additional new shares in the company.
 This type of issue gives existing shareholders securities
called rights.
 With the rights, the shareholder can purchase new shares at
a discount to the market price on a stated future date.
 The company is giving shareholders a chance to increase
their exposure to the stock at a discount price.

31.  Shares issued by the company for the
existing shareholdres
 Proportionate number of shares available to
all the existing shareholders of the company
which can be bought at a given price for a
fixed period of time.

32.  PROCEDURE OF RIGHTISSUEOF SHARES
 Company will decide the cutoff date.
 Company wills Prepare Draft Offer of Letter attached as Annexure-A
 Call & Hold the Board Meeting & Pass Board Resolution for
approval of Right issue & offer letter .(Resolution is attached
as Annexure-B)
 Authorize a director of company to issue Letter of Offer.
 Letter of offer shall be dispatched through registered post or speed
post or through electronic mode to all the existing share holders.

33.  Offer will be open at least after 3 days of issue of letter of offer.
 Offer will be open for minimum 15 days or maximum for 30 days.
 Receive the Money from the Shareholders.
 Again call & Hold the Board Meeting
 Present List of Allottes before the Meeting.
 Pass Board Resolution for allotment of shares (within 60 days of
receiving of money).( Resolution attach as Annexure-C)

34.  Annexure-A
 NOTICE/ LETTER OF OFFER
 Date: 01.04.2016
 Sub: Issue upto 17,63,71,500 (Seventeen Crore Sixty Three Lakhs
Seventy One Thousand and Five Hundred) Equity Shares of Rs. 10
(Rupees Ten) each for cash, aggregating to Rs. 1,76,37,15,000 (Rupees
One Hundred and Seventy Six Crores Thirty Seven Lacs Fifteen
Thousand Only) on right issue basis to the existing shareholders of
the Company

35.  Dear Shareholder(s),
 You are hereby informed that the Board of Directors has decided to
increase the subscribed and paid up capital of the Company by issue and
alllot up to 17,63,71,500 Equity Shares of Rs. 10/- each fully paid-up on
right basis to existing equity shareholders of the Company as on
………………… on proportionate basis in the ratio of 2 Equity Shares for every 1
Equity Shares held by the existing shareholders on the date of this offer as
per the detailed terms and conditions as mentioned, inter alia hereunder:
 As a shareholder on the aforementioned date, we are pleased to inform
you that you are entitled to for the “rights shares offer” in reference to
details as mentioned in the enclosed application form.

36.  PROPOSAL FOR RIGHTISSUE:
 The Board was informed that for the development of 350MW solar
power project in the state of Andhra Pradesh, the Company requires
internal funds by way of increase in paid up capital of the Company.
Therefore, the Company may request the existing shareholders of the
Company to infuse further funds in the Company by subscribing to
the equity share capital. The Board was further apprised that for the
same, a right issue can be offered to the existing shareholders in the
ratio of their present holding with the right to renounce. The Board
discussed the matter and passed the following resolution:

37.  Control of the company can be retained with existing
shareholders
 Certainty of getting capital from the existing shareholders
 Can avoid selling shares to the near and dear
 Existing shareholders will be satisfied
 Less expensive
 Will increase the good will of the company

38.  Shares to the current shareholders at free of cost
 Issued by the company to its current share holdres
 These are from the profit of the company
 As a reserve to existing shareholders

39.  New shares given free of cost to all the existing
shareholders of the company in proportion to their
holdings.
 These are issued out of free reserves accumulated
out of genuine profits or share premium collected.
 These are issued for free to the shareholders of
the company.
 These are generally issued by profit making
companies

40.  The Board of Directors of Hong Fok Corporation Limited (the
“Company”) wishes to announce that the Company is proposing a
bonus issue to its shareholders on the basis of one (1) bonus share for
every ten (10) existing ordinary shares in the capital of the Company
(“Shares”), fractional entitlements to be disregarded (the “Proposed
Bonus Share Issue”).

41.  Control of the company can be retained with existing
shareholders
 No need to raise capital
 Taken from profit
 Will increase the goodwill of the company

42.  Decrease in dividend since profit is used to buy share on
behalf of the existing shareholders
 No chance for public to invest
 Will increase the infallibility of the existing shareholders

43. RIGHT SHARES BONUS SHARES
 For the existing shareholders
 At payment
 For the existing shareholders
 At free of charge

44.  No public can buy
 Existing shareholders become stronger

45.  They do not carry voting rights.
 The rate of dividend is usually lower as
compared to the equity shares.

46.  Stock of large, well established and financially sound
company
 That company will have a tradition of long term
operation

47.  Stock of a large,well estd and financially sound
company that has operated for many years.
 Market leader or one among 3 companies
 Paying stable or rising dividends for years
 Best rated shares with highest status
 Eg: tata consulting services,reliance,hdfc,sbi
,icici

48.  Stock of big and old reputed company
 Safer stock
 High value stock
 Costly stock (rs.1000 per share)
 Price fluctuation represents economy’s status
 Share of a company with very high market capitalization
 Market capitalization=no. of shares x share price
 crore x 1000 = Rs.10,000 cr

49.  Common equity share
 Public can buy
 Open to all
 Not issued to existing shareholders
 Stock of all listed companies (including blue chip share)

50.  Long term capital of companies
 Public can invest
 Buyers become the owners
 Get voting right
 May become director board member

51.  They were earlier issued to promoters or
founders for services rendered to the
company.
 Also known as founders shares because they
were normally issued to founders.
 They are considered last for the payment of
dividend and return of capital is concerned.

52.  Share with special voting right that gives
peculiar power
 If the govt wishes to sell off a company in a
sensitive industry (defence) and yet retain
control it can hold on to a golden share.

53.  Equity shares issued by a company to its
employees or directors at a discount or for
consideration other than cash.

54.  Preferred stock
 Stock of a company
 Preference in getting dividend and capital
 Shareholder swill get dividend before equity shareholders
 Will get capital before equity shareholders if the company
winds up.+
 Limited return

55.  Those shares which have a preferential right for
the payment dividend during the lifetime of the
company and for the return of capital at the time of
winding up.
 They carry fixed rate of dividend that are paid to
shareholders before equity stock dividends are paid
out.
 They have preferential rights over equity
shareholders.

56.  Long term debt instruments
 Two terms are interchangeable in India
 Gets fixed rate of interest
 Meaning?
 Written promise to repay the loan on a specific maturity date to the
bearer
 Promise to pay periodic interest to the bearer

57.  Buying bond – giving loan to the issuer
 Selling bond – taking loan from the buyer
 Buyers = creditors
 Sellers = debtors
 Govt selling a bond – govt is taking debt
 If a person is buying bond from govt/ company – he is
giving long term loan to the govt/ company

58.  Convertible bond
 Non convertible bonds
 Partly convertible bonds
 Fully convertible bonds
 Redeemable bonds
 Irredeemable bonds

59.  Convertible debt or convertible note
 Type of debt security which can be converted into equity
share
 Companies may issue convertible bonds,which bond holders
can convert to equity
 Low interest rate
 Companies issue this to lower the borrowing cost
 After the maturity , it will be converted into equity.

62. From company’s
perspective
From investors
perspective
To lower the borrowing cost
Debt at low interest
Safer return before the maturity
Turn to equity after the maturity

63.  Bonds that can’t be converted to company equity
 Gets interst up to maturity and principal amount
after the maturity
 Usually gets higher interest rates to the holders
/investors
 Investorshave no other attraction( no conversion)

65.  Part of bond will be repaid by the issuing company after the
maturity
 Part will be converted into company’s equity or preference share
 Only a part of the instrument will be turned into share
 Example:
 For a bond of rs.100cr
 Rs 50 cr will be repaid
 Rs.50 cr will be turned into share
 The ratio will be decided by the issuing company

66.  Whole value of the bond will be turned into share
 Company issues this to lower the borrowing cost
 Buyers gets lower rate of interest
 After the maturity , the holder will become
shareholder

67.  Bonds which are repayable at the end of maturity
 At maturity , holders will get back capital
 Comparatively lower rate of interest

68.  Bonds which are not repayable at the end of maturity
 At maturity,holders will not get capital
 Only repayable at the time of liquidation of the company (
when company shuts down)
 Company gets debt with less liability
 Company has to pay higher rate of interest

69.  HOMEWORK

70. Types Benefits of ssuers Benefits of buyers
Convertible bonds
Non convertible
Partly convertible
Fully convertible
Redeemable