financial marketchapter3 totally FREE OF COST
- 2. LEARNING OBJECTIVES Student will be able to 1. Discuss the concept of capital market. 2. Explain primary and secondary markets as types of capital market. 3. Differentiate between capital market and money market. 4. Discuss the methods of floating new issues in the primary market. 5. Distinguish between primary and secondary markets.
- 5. Types of Financial Markets There are broadly two types of financial markets in an economy :- 1.Money market 2.Capital market
- 6. Types of Financial Markets 2.Capital market Capital market refers to facilities and institutional arrangements through which which long-term funds,both debt and equity are raised and invested. SEBI NSE BSE FII'S BANKS BROKERS INVESTORS Base for economic development Source of Fixed Capital Long Term Securities SHARES DEBENTURES
- 7. Types of Financial Markets Capital market- Features •Capital market deals in medium & long-term funds,both debt and equity are raised and invested. •The maturity period of these securities are more than one year. •These securities are less liquid. •These instruments are riskier.
- 8. PARTICIPANTS IN CAPITAL MARKET •Joint stock companies, stock exchanges, development banks, commercial banks, foreign investors and retail investors are the participants of capital market. •A well established capital market is essential for economic development of a nation.
- 9. Difference between Money Market and Capital Market Basis Money Market Capital Market Meaning Market for short term funds Market for Long term funds 1.Instruments CP,CD,T-Bills,Trade bills etc Equity Shares,Preference Shares,Debentures,Bonds 2.Participants RBI,Commercial banks,NBFC,State Government,Companies, Mutual Funds Stock Exchange, companies,Development banks,Commercial banks,FII's,Investors 3.Duration of Securities Deals short term securities Deals long term securities 4.Return Low risk & less return High risk & high return 5.Price Determined Determined by demand and
- 10. Difference between Money Market and Capital Market Basis Money Market Capital Market Impact It directly promotes capital formation in the economy It indirectly promotes capital formation as it ensures liquidity to existing securities. Process In primary marketing only buying,no selling of securities In secondary market both buying and selling of securities regularly Location It has no fixed geographical location It is located at fixed places Purpose Securities are issued to raise funds from public Securities are traded for investment and speculative purpose Securities New Second hand
- 11. The capital market can be divided into two segment:- 1.Primary market 2.Secondary market Types of Capital Market
- 12. Types of Capital Market 1.Primary market This is the market for new securities. In primary market companies issues shares,debentures and bonds directly to investors and collect required funds. Here buyers get new securities,so it is also called new issue market. Primary market deal with new securities. In Primary Market contact is between company and the investors,in secondary market it is between investors. In Primary Market company get cash and investors get new shares.
- 13. Types of Capital Market 1.Primary market •This is the market for new securities. • In primary market companies issues shares,debentures and bonds directly to investors and collect required funds. •Here buyers get new securities,so it is also called new issue market. • In primary market company collect money and investors get new securities directly from company . •Those who are assisting the activities of primary markets are underwriters,share brokers,stock exchanges, merchant bankers etc.
- 14. Methods of issuing securities in the in Primary Market 1.Public issue through prospectus 2.Offer for sale 3.Private placement 4.Right issue 5.e-IPOs
- 15. Public issue through prospectus
- 16. Methods of issuing securities in the in Primary Market 1.Public issue through prospectus Under this method, the company invites the general public to subscribe its shares or debentures through issue of ‘prospectus’. The ‘prospectus’ contains everything about the company and public issue. These details help the public to understand and evaluate the earnings potential and risk in the proposed investment. This method requires bankers, brokers and underwriters to work as intermediaries. It is an expensive method. Most popular method Require advertisement and assistance of brokers,bankers underwriters etc Prospectus is an invitation, it helps to inform and attract the investing public
- 17. Methods of issuing securities in the in Primary Market The between difference purchase price and selling price is the profit (Turn) of the intermediary. Under this method securities are not issued directly to the public but are offered for sale through intermediaries
- 18. Methods of issuing securities in the in Primary Market 2.Offer for sale(OFS) •It is an indirect way of selling securities to the public. •Under this method the entire lot of securities are first sold to an intermediary at a fixed price. •The intermediary may be issuing houses or stock brokers. •The intermediary then resells these shares to the investing public at a higher price. •The issuing company thus saved from the tedious process involved in making public issue.
- 19. Methods of issuing securities in the in Primary Market ➢ It is a way of selling securities to private investors. ➢ It ensures shares available to only a limited number of suitable investors. ➢ Does not require 'underwriting'. ➢ It is beneficial to all types of companies because it is less expensive and less time consuming.
- 20. Methods of issuing securities in the in Primary Market 3.Private placement Private placement is the allotment of securities by a company to institutional investors like LIC,UTI etc. and some selected individuals. This method helps to raise capital more quickly than a public prospectus. Companies which cannot issue through afford a public issue can choose private placement.
- 21. Methods of issuing securities in the in Primary Market 4.Right issue ➢ ➢ It is only a right,there is no obligation to exercise this right. It is chance to existing shareholders to purchase additional new shares in the company at a discounted rate.
- 22. Methods of issuing securities in the in Primary Market 4.Right issue A rights issue is an invitation to existing shareholders to purchase additional new shares in the company in proportion to their existing holdings. Right issues are offered when an existing company issues additional shares(FPO) to increase their capital. It is generally offered at a price below the current market price.to exercise this right. FOR EXAMPLE RIGHTS ISSUE offered by Reliance India Limited in 2020 to existing shareholder.
- 23. e-IPOs
- 24. Methods of issuing securities in the in Primary Market 5.e-IPOs It refers to issuing securities through on-line system of stock exchange . SEBI registered brokers have to be appointed for the purpose of accepting applications and placing orders with the company. The issuing company should also appoint a registrar to the issue. The share can be listed in any stock exchange other than the exchange through which it has offered for its securities.
- 25. Capital Market