The document discusses capital markets, which consist of primary and secondary markets. The primary market involves the initial sale of securities directly from companies to investors in order to raise capital. The secondary market allows existing securities to be traded between investors on stock exchanges, promoting liquidity. Various types of financial instruments like stocks, bonds, and government securities are discussed. Regulations governing capital markets aim to facilitate capital formation while ensuring fair and transparent trading.

1. Capital Markets

2. PRIMARY MARKET
It is the new issue market for the new long term
capital.
Here the securities are issued by company
directly to the investors
 On receiving the money from the new issues,
the company will issue the security certificates to
the investors.
The amount obtained by the company after the
new issues are utilized for expansion of the
present business or for setting up new ventures.

3. Role of Primary Market
Capital formation
 Liquidity
 Diversification
Reduction in cost

4. Types of issues
• Initial Public Offering (IPO)
• Rights Issue
• Preferential Issue

5. Advantages
• Raising capital for business.
• Mobilising savings
• Government can raise capital through sale of
Treasury bonds
• Open market operation to effect monetary
policy of the government
• It is a vehicle for direct foreign investment.

6. Secondary Markets
financial market for trading of securities that
have already been issued in an initial private
or public offering
 securities are sold by and transferred from
one investor or speculator to another.
 It should be highly liquid and transparent
Eg. market for long term securities like bonds,
equity stocks and preferred stocks, debentures

7. Regulatory Framework
 A comprehensive legal framework was provided
by the:
Securities Contract Regulation Act, 1956 and the
Securities and Exchanges Board of India Act,
1992.
 A three tire regulatory structure comprising
• the Ministry of Finance,
• the Securities and Exchanges Board of India
• the Governing Boards of the Stock Exchanges
regulates the functioning of stock exchanges

8. Functions of secondary markets
Raising capital for industries
• The negotiability and transferability of the securities helps the
companies to raise long-term fund
• Easy trade encourages investors to subscribe to IPO – stimulates capital
formation

9.  To maintain active trading
• price vary from transaction to transaction
• increases liquidity and marketability
 Fixation of prices
• Demand and supply

10.  To ensure safe and fair dealing
• rules, regulations and by-laws of the stock
exchanges
 Dissemination of Information
• publication by stock exchanges
• Handouts, handbooks and pamphlets provide
information regarding the functioning of the
stock exchanges.

11.  to maintain healthy performance of
corporate sector
• The prices of stock reflect the performance of
the traded companies
• makes corporate firms concerned abt
improving performance

12. Instruments
• Equity Shares
• Rights Issue/ Rights Shares
• Bonus Shares
• Preferred Stock/ Preference shares
• Cumulative Preference Shares
• Cumulative Convertible Preference Shares
• Bond
• Debentures
• Commercial Paper
• Treasury Bills

13. • Equity Shares:
- commonly referred to as ordinary share
-represents the form of fractional ownership in
which a shareholder undertakes the maximum
entrepreneurial risk associated with a
business venture.
- The holders of such shares are members of
the company and have voting rights.

14. • Rights Issue / Rights Shares:
The issue of new securities to existing
shareholders at a ratio to those already held.
• Bonus Shares:
Shares issued by the companies to their
shareholders free of cost by capitalization of
accumulated reserves from the profits earned
in the earlier years.

15. • Preferred Stock / Preference shares:
Owners of these kinds of shares are entitled to a
fixed dividend or dividend calculated at a fixed
rate to be paid regularly before dividend can be
paid in respect of equity share.
They also enjoy priority over the equity
shareholders in payment of surplus.
But in the event of liquidation, their claims rank
below the claims of the company’s creditors,
bondholders / debenture holders.

16. • Cumulative Preference Shares:
A type of preference shares on which dividend
accumulates if remains unpaid.
• Cumulative Convertible Preference Shares:
A type of preference shares where the
dividend payable on the same accumulates, if
not paid. After a specified date, these shares
will be converted into equity capital of the
company.

17. • Government securities (G-Secs):
These are sovereign (credit risk-free) coupon
bearing instruments which are issued by the RBI
on behalf of Government of India, in lieu of the
Central Government's market borrowing
programme.
These securities have a fixed coupon that is paid
on specific dates on half-yearly basis. These
securities are available in wide range of maturity
dates, from short dated (less than one year) to
long dated (up to twenty years).

18. • Debentures:
Bonds issued by a company bearing a fixed
rate of interest usually payable half yearly on
specific dates and principal amount repayable
on particular date on redemption of the
debentures.
Debentures are normally secured / charged
against the asset of the company in favour of
debenture holder.

19. • Debentures: Bonds issued by a company
bearing a fixed rate of interest usually payable
half yearly on specific dates and principal
amount repayable on particular date on
redemption of the debentures. Debentures
are normally secured / charged against the
asset of the company in favour of debenture
holder.

20. • Bond:
A negotiable certificate evidencing indebtedness.
It is normally unsecured.
A debt security is generally issued by a company,
municipality or government agency.
A bond investor lends money to the issuer and in
exchange, the issuer promises to repay the loan
amount on a specified maturity date.
The issuer usually pays the bond holder periodic
interest payments over the life of the loan. The
various types of Bonds are as follows-