Capital Market

Institutional arrangement for lending and borrowing of long term funds. Consists of series of channels through which the savings of the community are made available for industrial and commercial enterprises and public authorities.

Functions Mobilization of financial resources on a nation wide scale. Leads to economic growth at a faster rate. Directs the flow of savings into most profitable channels

Primary Market Or New Issue Market Primary market is a market for raising long term sources of finance. New securities that have never been previously issued are offered. Both the new and existing companies can raise capital from this market. Facilitate the transfer of funds from willing investors to entrepreneurs setting up new companies or going in for expansion, growth or modernization.

Securities dealt in primary market Securities Ownership securities Equity Shares Preferenc e shares No par stock Creditorshi p securities Debentures

Ownership securities

1. Equity Shares Equity shareholders are the real owners of the company. Have a control over the working of the company. Paid dividend after paying it to preference shareholders. Rate of dividend depend upon the profits of the company. No dividend in case of no profits. Cannot be redeemed during the lifetime of the company.

Characteristics of equity shares MaturityRight to income Claims on assets Voting rights Pre-emptive right

2. Preference Shares These shares have certain preferences as compared to other types of shares. Fixed rate of dividend is paid on preference share capital. 2 Preferences Preference for payment of dividend Repayment of capital

Features of preference shares FeaturesMaturity Claims on income Control Claims on assets

Types of preference shares Cumulative preference shares Non-cumulative preference shares Convertible preference shares Non-Convertible preference shares Redeemable preference shares Irredeemable preference shares Participating preference shares Non-Participating preference shares

3. No Par Stock Shares having no face value Capital of the company issuing such shares is divided into a number of specified shares without any specific denomination Share certificate of the company states number of shares held by the owner without mentioning any face value Value of such share determined by dividing the real net worth of the company with the total number of shares of the company Dividend is paid on per share

Creditorship securities

Debentures or Bonds It is a document under the company’s seal which provides for the payment of a principal sum and interest thereon at regular intervals. Debentureholder is the creditor of the company. A fixed rate of dividend is paid on the debentures.

Types of Debentures Unsecured debentures Secured debentures Bearer debentures Redeemable debentures Convertible debentures Irredeemable debentures

Features of Debentures Maturity Claims on income Claims on assets Control

SECONDA RY MARKET

*Stock market represent the secondary market *Existing securities are traded *Organized mechanism for purchase and sale of existing securities *Allow trading in securities both to genuine investors and speculators.

“Stock exchanges are market places where securities that have been listed thereon may be bought and sold either investment or speculation.” DEFINITION

Place where securities are bought and sold Trading is strictly regulated and rules and regulations prescribed for various transactions Both genuine investors and speculators buy and sell shares Securities of corporations, trusts, govt. etc allowed to be dealt at stock exchanges Characteristics

Ensure liquidity of capital Continuous market for securities Mobilising surplus savings Safety in dealings Functions of Stock Exchange

Listing of securities Evaluation of securities Platform for public debt