Instruments in the Capital Markets in India

Instruments in the Capital Markets in India

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A capital market refers to a financial market where equity-backed securities and long-term debt are bought and sold. Providers are individuals/associations with the money to loan or contribute. Investors and banks are typical examples. The capital market in India is governed by the Securities Exchange Board of India (SEBI).

India's capital market structure is divided into two categories:

a. The Primary market - It is the new issue market, where businesses issue shares through an Initial Public Offering (IPO) for the first time. The company's shares are listed on the stock exchange after the IPO is successful. In the primary market, private placement, rights sales, and prospectuses are used to raise capital. The money is raised for the business's expansion and growth.

b. The Secondary market - It is a market for the trading of securities and listed shares. Typically, the place to buy and sell securities is a stock exchange. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are India's two major stock exchanges, where the majority of equity trading and investments take place. Secondary markets like the NSE and BSE are excellent examples.

There are primarily five types of instruments in the capital market:

1. Stocks - signify ownership of a business. Each share contributes to the company's ownership. The price of shares is determined by supply and demand on the market and is traded on the stock exchange. The individual holding portions of an organization is the investor. Dividends are given to shareholders. In addition, equity shares grant them the right to vote at the company's annual general meeting on significant decisions. After the liabilities have been paid off, they receive a portion of the assets during liquidation.

2. Bonds - Debt securities that trade on the stock exchange are called bonds. Bonds are issued by businesses and firms to raise funds for expansion and growth. Bonds are obligation instruments, thus bondholders get interest. The company returns the principal amount plus interest at the end of the maturity period.

3. Exchange-Traded Funds - A group of investors' money is used to buy a variety of capital market instruments, such as shares, debt securities like bonds, and derivatives, through exchange-traded funds.

4. Derivatives - The instruments of the capital market that derive their values from the underlying assets are known as derivatives. Stocks, bonds, currency, and other assets are among these.

5. Currency - Currency is represented as a financial instrument on foreign markets. There are three kinds of currency agreements: spot, outright forwards, and currency swap.