The document provides an overview of capital markets, explaining their importance in raising long-term funds for businesses and governments. It describes the primary and secondary markets, various financial instruments such as equity shares and debentures, and the roles of participants like depositories and stock exchanges. Additionally, it covers corporate actions and derivatives, outlining how they function within the capital market framework.

2. Introduction
•For starting any business, an entrepreneur needs investment in the
form of capital
•An entrepreneur may not be able to invest his own money so he has
to borrow
•Problem in borrowing
•Banks / Financial Institutions may demand a security for their loans in
the form of a collateral

3. What is a Capital Market?
•A capital market is a market for securities (debt or equity), where
business enterprises (companies) and governments can raise long-
term funds
•It is defined as a market in which money is provided for periods
longer than a year
•Capital market is a market for long term debts and equity shares
•The issue may be Shares, Debentures, Bonds, etc.

4. Importance of Capital Market
•Pool the capital resources
•Solve the problem of shortage of funds
•Mobilize the small and scattered savings
•Increase the availability of invest-able funds
•Provide a number of profitable investment opportunities for a small
savers

5. Classification of Capital Market
CAPITAL MARKET
PRIMARY MARKET SECONDARY MARKET
PUBLIC RIGHT BONUS PRIVATE PRIVATE
ISSUE ISSUE ISSUE PLACEMENT PLACEMENT

6. Primary Market
•Primary
-The market for new securities issues.
-In the primary market, the security is purchased directly from the issuer.
•Initial Public Offering (IPO)
-When an unlisted company makes either a fresh issue of securities or an offer
for sale of its existing securities or both for the first time to the public. This
paves way for listing and trading of the
issuer’s securities.
•Follow on Public Offering (Further Issue)
-When an already listed company makes either a fresh issue of securities to the
public or an offer for sale to the public, through an Offer document.

7. Primary Market (Contd)
•Rights Issue
−A rights issue is a way in which a company can sell new shares in order to
raise capital. Shares are offered to existing shareholders in proportion to
their current shareholding. This route is best suited for companies who
would like to raise capital without diluting stake of its existing shareholders.
•Preferential Issue
-An issue of shares or of convertible securities by listed companies to a
select group of persons under Section 81 of the Companies Act, 1956
which is neither a rights issue nor a public issue. This is a faster way for a
company to raise equity capital.

8. Secondary Market
•Secondary Market refers to a market where securities are traded
after being initially offered to the public in the primary market and /
or listed on the stock exchange.
•Secondary market comprises of Equity market and Debt market.
•It is the trading avenue in which the already existing securities are
traded amongst investors.

9. Financial Instruments dealt in
Secondary Market
•Equity Shares:
-An equity share, commonly referred to as ordinary share, represents the
form of fractional ownership in a business venture
-Holders of the equity shares are members of the company and have voting
rights.
•Right shares:
-This refers to the issue of new securities to the existing shareholders, at a
ratio to those shares already held.
•Preference shares:
-Preferred share has characteristics of both common shares and bonds. Like
common shares, preferred share owners have an ownership interest in the
company. Like bonds, preferred stocks carry a commitment by the company
to pay a fixed amount of interest to shareholders in the form of dividends.
However, preferred stocks dividends must be paid before common stock
dividends.

10. Financial Instruments dealt in
Secondary Market (Contd)
•Debentures:
-Debentures are issued by a company to raise short to medium term loans
needed for expenses or expansions. It is an unsecured bond in which the
bondholder has no claim on the assets of the bond issuer.
•Bonds:
-A bond is a negotiable certificate evidencing indebtedness. It is normally
unsecured.

11. Depository
“A depository is like a bank wherein the deposits are
securities (viz. shares, debentures, bonds, government
securities, units etc.) in electronic form”.
There are two Depositories in our country:
–NSDL
–CDSL

12. Corporate Actions
• Dividend:
-Dividend is distribution of part of company's earnings to shareholders, usually
twice a year in the form of a final dividend or an interim dividend.
• Stock Split:
-When company splits the existing shares of a particular face value into smaller
denominations so that the number of shares increase, the market capitalization
or the value of shares held by the investors post split remains the same as that
before the split.
• Bonus Shares:
-These shares are issued by the companies to their shareholders free of cost
by capitalization of accumulated reserves from the profit earned in the earlier
years.

13. Corporate Actions (Contd)
•Buy back:
-A method for company to invest in itself by buying shares from other investors
in the market. Buybacks reduces the number of shares outstanding in the
market.
•Rolling Settlement:
-Under rolling settlement all open positions at the end of the day mandatorily
result in payment/ delivery ‘n’ days later. Currently trades in rolling settlement
are settled on T+2 basis where 'T' is the trade day.
•Pay- in Day and Pay-out Day:
-Pay-in day is the day when the brokers make payments or delivery of
securities to the exchange.
-Pay-out day is the day when the exchange makes payment or delivery of
securities to the broker.

14. Role of Various Participants
•Depository
–A Company where the shares of an individual are held in an electronic
form, at the request of the shareholder.
•Stock exchange
–A Company that provides services for stock brokers and traders to
trade stocks, bonds and other securities.
•Clearing Corporation
–A Company which works with the exchanges to handle confirmation,
delivery and settlement of transactions.
•Clearing Members
–A Member of the Clearing Corporation who clears and settles deals
through the Clearing Corporation.
•Trading Member
–A Member of Exchanges who has the right to execute transactions in
the trading system of the exchange.

15. Derivative
“Derivative is a contract which derives its value from the prices of
underlying assets”.
•Future:
–An agreement between two parties to buy or sell an asset at a certain time
in the future at a certain price
–Future Price = Spot Price + Cost of Carry
•Options
-Options are of two types – calls and puts. Calls give the buyer the right but not
the obligation to buy a given quantity of the underlying asset, at a given price
on or before a given future date. Puts give the buyer the right, but not obligation
to sell a given quantity of the underlying asset at a given price on or before a
given date.

16. Derivative (Contd)
•Financial Future:
–A future contract for which the underlying assets are stocks or index
•Commodity Future:
–A future contracts for which underlying assets is commodity.
•Commodity Spot:
–Cash Segment of commodity market.
•Currency Future:
–A future contracts for which underlying assets is the Currency.

17. Thank You