The Art of Investing money through Capital Market in 2023

Introduction

Capital market is a part of Financial Market where trading is done by the buyers and sellers. The trading of financial securities for more than a year comes under Capital Market system. The financial market plays a very important role in enhancing the financial stability of a country. Due to the liquidity nature of financial market, we can save much time and money. In this article, we will understand a complete diversification of Capital market.

Types of Financial Market

Money Market – it includes Bank, T-bill

Capital Market – it includes Debt and Equity instruments

Difference Between Money Market and Capital Market

  • Money markets are for short terms for less than a 1 year of period while Capital markets are for long terms for more than a year of period
  • Short term instruments are T-Bills, Promissory notes while long term instruments are Bonds, Equity shares, etc.
  •  Money market involves Banks, NBFC while Capital market involves insurance companies, stock exchanges, etc.
  • Money market is highly liquidated in nature while Capital market is very less in liquidity in nature
  • Money markets have low risk profile while Capital markets have high risk profile
  • Money market is regulated by RBI while Capital market is regulated by SEBI

Capital Market further classified into two categories

Primary Market

Secondary Market

  1. Primary Market – The meaning of primary Capital market is very simple to understand. It is a market for issuing fresh shares into the market and these shares are further known as Initial Public Offering that is IPO. Funds are collected for a longer period of time. It works in a chain system means at first this market collects fund by issuing fresh shares into the market in the form of Initial Public Offering and due to this a very large amount of money is collected at primary source. Banking institutions play an important as a medium of money transfer in the market. By doing this it becomes origin of capital in the market.
  2. Secondary MarketThe secondary market is simply known as the Stock Market where a large amount of trading of financial securities done on day-to-day and long- term basis. It is a hub where investors invest their money. It comes after primary market because the fund collected at primary market is further bring in use to circulate through trading activities. Share market only transacts those securities which have already registered in the primary market. The wholly manager of stock market is SEBI i.e., Securities and Exchange Board of India.

Different ways of Borrowing Money

  • Government Securities
  • Sovereign Bonds
  • Dated Securities

Role of Intermediaries

As we know stock market is that market where day to day or long -term trading of securities is done. But fund transactions done in very large amount and this fund is totally managed by the intermediaries that is Banking sector. Commercial Banks provides facilities of funds in between the stock market and the user.

Features of Capital Market

The Capital Market has many features, which are following

  • It helps in enhancing the economic growth of a country
  • A market where big firms can raise funds easily
  • A market where securities are traded for longer terms
  • It converts money savers to investors
  • It has highly liquidity form
  • It saves a lot of time
  • In this capital market Equity and Debt related securities are traded
  • Long term securities include Bonds, Shares are purchased and sold into this market
  • In equity system, anybody can buy stocks of any listed company and can become a company shareholder.
  • It helps companies to raise funds to widen their business

Difference between Debt Instruments and Equity Instruments

Debt InstrumentsEquity Instruments
Include BondsInclude Shares
Have Fixed incomeHave Variable income
The Principal value returned on maturity timeThere is no return of Principal value
These are Less- riskyThese are More- risky
These can be for Short term or Long termThese are for Long term only

Types of Debt Instrument Bonds

  • Coupon Bonds – to claim interest
  • Zero Coupon Bonds – repurchased at face value
  • Bearer Bonds – anyone can claim interest and principal value during war times
  • Sovereign Bonds – issued by the Government
  • Inflation Indexed Bonds – Launched by RBI to provide interest rate to households
  • Sovereign Gold Bonds – usually denominated in gold grams
  • Junk Bonds – riskier bonds
  • Redeemable Bonds – pays interest value regularly and pays principal value at the time of contract completing
  • Irredeemable Bonds – pays interest value regularly but don’t give principal value in the end
  • Non- Convertible Bonds/Debentures (NCD) – cannot be converted into shares
  • BRICS Bond – to raise money for infrastructure loans
  • Masala Bonds – Rupee denominated bonds
  • Panda Bonds – Chinese YUAN denominated bonds
  • Kangaroo Bonds – Australian currency denominated bonds
  • Maharaja Bonds – A Rupee denominated Bond with high rating but with lower interest rate
  • Elephant Bonds – A Rupee denominated bond with a maturity period of 25 years
  • Green Bonds – to raise money for climate and environment sanitation
  • Blue Bonds – to raise money for ocean related programs
  • Catastrophe Bonds – to raise funds for natural disasters like earthquakes
  • Electoral Bonds – Bonds without interest amount payable

Note

  • Bond prices are always inversely proportional to the interest rates
  • Yields are directly proportional to the interest rates

Opportunities for Investors to buy shares of companies

Investors can buy shares through following ways

  • Initial Public Offer (IPO) – A state when a company launches its shares to trade publicly for the first time. It invites public to purchase their shares via application at face value of share.
  • Further Public Offer (FPO) – A state when already listed company on stock market brings again an opportunity to public to buy its shares. The purpose of further public offering is just for raising more fund to increase a company business.

Capital Market Formation

The capital Market is formed by many contributors which are following

  • Financial Institutions
  • Provident funds
  • Government
  • Foreign countries
  • Individuals
  • Corporate
  • Banks
  • Insurance funds

Instruments of Capital Market

  • Equity shares
  • Non- voting Equity shares
  • Preference shares
  • Debentures
  • Bonds
  • Mutual funds
  • Derivatives
  • Commodity
  • Currency exchange
  • Warrants

Categories of Investors

There are different kinds of investors in the Stock Market. These investors are following

Qualified Institutional Buyers (QIB)

Retail Investors

Non- Institutional Investors (NII)

  1. Qualified Institutional Buyers (QIB) – These are called big players. They invest in large amount of money in the market. These investors have registration with Securities and Exchange Board of India (SEBI). These have some quota reserved in new IPO launched by any company.
  2. Retail Investors – These are small type investors whose limit of investing money is max Rs 2lakh. They have some reserved in quota in new IPO launched by any company.
  3. NON- Individual Investors (NII) – These investors are those whose limit of investing money in any IPO of stock market is up to Rs 10 lakh.
  4.  Bull Investors – They buy shares at some price in hope, they will sell them at higher rate in future
  5. Jobber Investors – All time trader that is who buy and sell shares randomly in intraday market or delivery- based market.

Conclusion

The Economic Growth of any country totally depends upon Capital Market. Capital Market has wider scope and provide opportunities for the long run. It helps in generating more interest on savings than fixed deposits in Banks. It is well managed by SEBI and its liquidity form in addition to investors portfolio diversification is too high. It helps to increase financial stability of a Nation without any disturbance in flow of Capital into the market.

By this way, Capital Market has a significance role in making strong Economy of any country.

FAQ’s

  1. By whom Treasury-Bills are issued?

    Answer Central Government of India

  2. BY whom World largest IPO in the history worth more than $25 Trillion USD was launched?

    Answer ARAMCO IPO, an Oil Sector Company launched in 2019 by Saudi Arabia

  3. What is Secondary Market?

    Answer – A market where people can buy or sell shares from another person


  4. Long Term Debt Instruments have maturity period of ?

    Answer – more than 1 year


  5. Which type of instruments are included in Capital Market?

    Answer Debt and Equity Instruments

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