Different Instruments of capital and money market.

2.  Primary Market:Itisthe marketwherenew securitiesareissued,and companies raisecapital byselling new stocks or bonds to investors.
 Secondary Market:Itisthe marketwhereexisting securitiesaretraded among investors, including stocks and bonds.
What is Capital Market?
 TheCapital market isafinancial marketwherelong-term securitiessuchasbonds and stocks arebought and sold. Itprovides a platform
for companies and governments to raisefundsforvarious purposes, suchasexpansion, researchand development ,and infrastructure
projects. Itconsist of :

3.  PRIMARY MARKET:
Primarymarketisthatpart ofthecapitalmarkets that dealswith theissuanceofnewsecurities.Companies,governmentsor publicsector
institutions canobtain fundingthroughthesaleofa newsharesorbondissue.Theprimarymarketisthemarketwherethesecuritiesaresoldfor
thefirsttime.Thereforeit isalsocalledtheNewIssueMarket (NIM).
Theissueofsecuritiesbycompaniescantake placeinanyofthefollowingmethods: -
Initialpublicoffer
Furtherissueofcapital
Rightsissue
Firmallotment
Offerto public
Bonusissue

4.  SECONDARY MARKET:
Thesecondarymarket,alsoknownastheaftermarket,isthefinancialmarketwherepreviouslyissuedsecurities andfinancial
instrumentssuchasstock,bonds,options,andfuturesareboughtandsold.Thestockmarketorsecondarymarketensures
freemarketability,negotiabilityandpricedischarge.Secondarymarkethasfurthertwocomponents:
SpotMarket:Wheresecurities aretradedforimmediatedeliveryandpayment.
FuturesMarket:Wherethesecurities aretradedforfuturedeliveryandpayment.

5. CLASSIFICATION OF CAPITAL MARKET INSTRUMENTS
PureInstruments:Equity shares,preferenceshares,debenturesandbondswhichare
issuedwiththebasic characteristicswithout mixingthefeaturesofotherinstruments
arecalledpureinstrument.
Hybrid Instruments:Instrumentswhicharecreatedbycombiningthefeaturesofequity,
preference,bondarecalledashybrid instruments.
DerivativeInstrument:Aderivative instrumentisa financialinstrumentwhichderivesits value
fromthevalueofsomeotherfinancialinstrumentorvariable

6. CAPITAL MARKET INSTRUMENTS
o EquityShareCapital
Equities,also knownasstocksorshares,representownershipinacompany.Investorswhopurchaseequities becomeshareholdersand have
theopportunity to participate inthecompany'sprofits through dividendsand capitalappreciation. Equityshareholdersreservetherightto vote.
However,holdersofthis instrumentrankbottom onthescaleofpreferenceintheeventofcompanyliquidation becausetheyareconsidered
ownersoftheenterprise.
• ResidualClaimonAssets: Intheeventofthewindingupofthecompany,equity shareholdershavetherightto receivethecompany’s
residual assets afterallothersettledobligations.
• VotingRights: Equityshareholdershavetherightto voteonmatters thataffectthecompany,suchastheelectionofdirectors,approval of
financialstatements, andmajorcorporate actions.
• TransferabilityofShares:Equitysharesarefreelytransferable,subjectto theprovisions ofthecompany’sarticlesofassociation and
applicablelaws.
• NoFixedObligation to PayDividends:Unlikedebtinstruments,equity sharesdonotcreateafixedobligation onthecompanyto pay dividends.
Thepaymentofdividendsissubjecttothediscretionofthecompany’sboardofdirectors.
• PermanentCapital: Equitysharecapital representspermanentcapitalforthecompany,asthereisnoobligation to repaytheamountraised
throughtheissuanceofequity shares.
v

7. o Debentures
A debenture is a debt tool used by a company that supports long-term loans. Here, the fund is a borrowed capital, which makes
the holder of debenture a creditor of the business. The debentures are redeemable and unredeemable, freely transferable with a
fixed interest rate. Itis unsecured andsustained onlybytheissuer’s credibility.
• Adebenture isaloandocumentthatacknowledges adebt
• Itisintheform of acertificate issued under theseal of thecompanycalled adebenture deed
• Theinterest ispayable irrespective of theprofit level, whichmeansthatevenwhenthecompanyisatloss, ithastopaythe
interest
• Debenture holderdoes nothave therighttovote inthe company’sgeneral meetings of shareholders, buttheymayhave
separate meetingstovote.

8. oPreferenceShareCapital
PreferenceShareCapital is thefundsgeneratedbya companythroughissuing preferenceshares(also knownasPreferencestock). Preference
Shareholdershavethefirst rightto receivedividendsevenbeforeequityshareholders. However,preferenceshareholdersdo notenjoyvotingrights in
thecompany.Preferencesharesaretypicallynottradedinthesecondarymarket likeequityshares.
Thetypesofpreferencesharesinclude:
•Redeemable:Theissuing organization canredeemthepreferencesharesbychoosingbuyback atalaterstage.
•Irredeemable:Acompanycanredeemtheirredeemablesharesonlywhenitliquidates.
•Convertible:Aninvestorcanconvertthesepreferencesharesintoequity afteraspecifictime.

9. o Bonds
Bondsaredebtinstrumentsissuedbygovernments,municipalities,andcorporations to raisecapital. Investorswhopurchasebonds are
essentiallylendingmoneyto theissuerin exchangeforregularinterestpaymentsandthereturnoftheprincipalamountatmaturity.
Theseinstrumentsguarantee periodicinterestpaymentsand therepaymentoftheprincipalamountuponmaturity, allata
predeterminedinterestrate.Thevalueofbondscanfluctuateinthesecondarymarket,influencedbyvarious factorssuchas credit
ratings, changesintheeconomy,andotherpertinentconsiderations.
Inthis typeofcapital marketinstrument,investorscantake partinthismarketbybuying andsellingbonds,consideringthesefactors
andpotential returns.

11. MONEY MARKET INSTRUMENTS
o Treasury Bills (T-Bills)
i. Short-termdebtinstrumentsissuedbythegovernmentto financeitsoperations and managecashflow.Theseareusuallyissued by the
Reservebank ofIndia onbehalfofcentralgovernment.T-billsarepresentlyissuedinthreetenors,namely91 days,182 days, and364
days.
ii. Theminimuminvestmentamount whenpurchasingtreasurybillsisINR10,000. Ifyou wantto purchaseoverandabove this amount,you
willneedtodo it inmultiplesofINR10,000.
iii. TreasuryBillshavenoconceptofinterestordividend andwork on acompletelydifferentmechanism.Treasurybillsareissued ata
discountedprice.Whentheprincipalispaid backto theinvestoraftertheholdingperiod,he/shereceivesit atthefullfacevalue.

12. o Certificateofdeposits
i. Timedeposits issuedby banks andfinancialinstitutions witha fixedtermandinterestrate. A
ii. certificateofdeposit (CD)isa savings product that earnsinterestona lumpsumofmoneyforafixedperiodoftime.
CDsdifferfromsavingsaccountsbecausethemoneymustremainuntouchedfortheentiretyoftheirtermoryou
risk payingapenalty.
iii. Theminimumamount ofCDshouldbe1lakh.
iv. Itisanegotiableinstrument.

13. o DatedGovernmentSecurities
i. Thesearelong-termsecuritiesissuedbygovernment.
ii. Itcarriesfixedorfloatingcouponwhichis payableatfixedtimeperiods.
iii. Theyareissuedatfacevalue.
iv. Thetenorofthesecurityisalso fixed.
v. Thesecurityisredeemedatpar(facevalue)onits maturity date.

14. o Commercial Papers
i. Unsecured, short-term debt issued by corporations to meet short-term funding needs.
ii. CP is issued at discount and redeemed at face value.
iii. Maturities on commercial paper range from one to 270 days, with an average of around 30
days.
iv. The discount amount is determined by the negotiation between the issuer and the investor.
v. These instruments are transferable and are highly liquid.