- What is Capital Market?
The capital markets refer to a financial market for the buying and selling of long-term debt or equity-backed securities. Capital markets are divided into two parts, the primary markets and secondary markets. In the primary markets, new stock and bond issues are sold to investors, and in secondary markets, securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. The capital market includes the stock market, bond market and primary market where securities are traded for periods longer than a year.
- What is the difference between the primary market and the secondary market?
In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.
- What is Initial Public Offering (IPO)?
Initial Public Offer (IPO) is a process through which an unlisted Company can be listed on the stock exchange by offering its securities to the public in the primary market. The object of an IPO may be relating to expansion of existing activities of the Company or setting up of new projects or any other object as may be specified by the Company in its offer document or just to get its existing equity shares listed by diluting the stake of existing equity shareholders through offer for sale.
- New Listing New Listing is a process through which a company which is already listed on other stock exchange/s approaches the Exchange for listing of its equity shares. The companies fulfilling the eligibility criteria prescribed by the Exchange; from time to time; are listed on the Exchange.
- What is meant by 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. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.
- What is Financial Market?
The financial markets refer to a marketplace where buyers and sellers participate in the trade of assets such as stocks, bonds, currencies, derivatives and commodities include precious metals or agricultural goods. The Financial Market can be further classified into:
- Stock MarketsIncludes buying and selling of shares or common stock and enable the subsequent trading thereof.
- Bond MarketsFacilitates issuance of bonds, and enable the subsequent trading thereof.
- Commodity MarketsRefers to a market where commodities such as precious metals, crude, agricultural goods are traded.
- Money MarketsIncludes buying or selling of very short maturities assets such as Certificates of Deposit (CDs), Treasury bills, Commercial Paper.
- Derivatives MarketsFacilitates trading of instruments, whose value is derived from its underlying asset or assets, for the management of financial risk.
- Futures MarketsProvides standardized forward contracts for trading products at some future date.
- Insurance MarketsFacilitate the redistribution of various risks in exchange for payment.
- Foreign Exchange MarketsRefers to market where currencies are traded.
- What is Stock Market?
A stock market refers to a financial market for the trading of publicly held company stock and associated financial instruments (including stock options, convertibles and stock index futures).
Terms related to Stock Market:
- EquityThe ownership interest in a company of holders of its common and preferred stock.
- Rights Issue / Rights SharesThe issue of new securities to existing shareholders at a ratio to those already held.
- Bonus SharesShares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.
- Preferred Stock / Preference sharesOwners 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.
- Cumulative Preference SharesA type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.
- Cumulative Convertible Preference SharesA 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.
- Participating Preference ShareThe right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.
- What is Bond Market?
The bond market, also known as debt market or credit market, is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the form of bonds, but it may include notes, bills, and so on.
Terms related to Stock Market:
- Government securities (G-Secs)These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India 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).
- DebenturesBonds 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.
- BondA 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-
- Zero Coupon Bond Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.
- Convertible BondA bond giving the investor the option to convert the bond into equity at a fixed conversion price.
- Commercial PaperA short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesn’t require any guarantee. Commercial paper is a money market instrument issued normally for tenure of 90 days.
- Treasury BillsShort-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.
- What is Money Market?
Money market is a market for debt securities that pay off in the short term, usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non-equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.