The changes in economic scenario(after the liberalization) and the economic growth have raised the interest of Indian as well as Foreign Institutional Investors(FII’s) in the Indian capital market. The recent massive structural reforms on the economic and industry front in the form of de-licensing rupee convertibility, tapping of foreign funds, allowing foreign investors to come to India, have resulted, on one hand, in the quantum leap in activities/volume in the Indian capital market, and on the other hand and more importantly, that the Indian capital market has undergone a metamorphosis in terms of institutions, instruments, etc. The capital market in India is rightly termed as an emerging and promising capital market. During last 20 years or so, the Indian capital market has witnessed growth in volume of funds raised as well as of.
The buoyancy in the capital market has appeared as a result of increasing industrialisation, growing awareness globalisation of the capital market, etc. Several financial institutions, financial instruments and financial services have emerged as a result of economic liberalisation policy of the Government of India.
The capital market has two interdependent segments : the primary market and the secondary market. The primary market is the channel for creation of new securities. These securities are issued by public limited companies or by government agencies’ In the primary market, the resources are mobilized either through the public issue or through private placement route. It is a public issue if anybody and everybody can subscribe for it, whereas if the issue is made available to a selected group of persons it is termed as private placement.… Read the rest
Difference and demarcation between money market and capital market is made on the basis of maturity period of instruments and claims. short-term instruments maturing within a period of one year are traded in money market whereas the capital market deals with longer maturity financial assets and claims. Though both types of markets facilitate the transfer of funds from savers to deficit-users, still the difference between the two is maintained with reference to the time-period covered by the transactions. Capital market includes trading in securities, mutual fund units and government debt instruments. On the other hand’ money market facilitates dealings in short-term financial instruments such as inter-corporate deposits, certificate of deposits, treasury bonds, commercial papers, commercial bills, etc. Money market and capital market can be differentiated as follows :
- The subject matter of capital market is long-term financial instruments having maturity of more than one year. on the other hand, the thrust of MM is on short-term instruments only.
- Money market is a wholesale market and the participants in money market are large institutional investors, commercial banks, mutual funds, and corporate bodies. However, in case of capital market even a small individual investor can deal by sale/purchase of shares, debentures or mutual fund units.
- In capital market, the two common segments are primary market and secondary market. Both these segments are interrelated. Securities emerge in primary segment and their subsequent dealings take place in secondary market. However, in case of money market, there is no such sub-division in general. In efficient money market, secondary market transactions may also take place.
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In the financial markets, there is a flow of funds from one group of parties (funds-surplus units) known as investors to another group (funds-deficit units) which require funds. However, often these groups do not have direct link. The link is provided by market intermediaries such as brokers, mutual funds, leasing and finance companies, etc. In all, there is a very large number of players and participants in the financial market. These can be grouped as follows :
The individuals: These are net savers and purchase the securities issued by corporates. Individuals provide funds by subscribing to these security or by making other investments.
The Firms or corporates: The corporates are net borrowers. They require funds for different projects from time to time. They offer different types of securities to suit the risk preferences of investors’ Sometimes, the corporates invest excess funds, as individuals do. The funds raised by issue of securities are invested in real assets like plant and machinery. The income generated by these real assets is distributed as interest or dividends to the investors who own the securities.
Government: Government may borrow funds to take care of the budget deficit or as a measure of controlling the liquidity, etc. Government may require funds for long terms (which are raised by issue of Government loans) or for short-terms (for maintaining liquidity) in the money market. Government makes initial investments in public sector enterprises by subscribing to the shares, however, these investments (shares) may be sold to public through the process of disinvestments.… Read the rest
Often investors invest through financial assets or financial instruments or securities. Investments that represent debt, ownership of a business or a legal right to acquire a part of ownership interest in business are called securities. There are a number of financial instruments which are traded in the money market. The important financial instruments are Treasury Bills, Certificates of Deposits, Commercial Bills, Commercial Papers, etc. The money market instruments have maturity period upon one year. Money market instruments are highly liquid, short-term debt instruments which mature in less than 12 months, and normally pay continuously varying returns. These involve no or very little degree of risk. The money market instruments pay return to investors in the form of discount at the time of issue. On the other hand, Capital market has instruments of longer maturity period. These instruments are :
Ownership Securities :
- Equity Shares,
- Preference Shares, and
- Cumulative Convertible Preference Shares.
Debt Securities :
- Non-convertible Debentures,
- Partly Convertible Debentures,
- Zero-Interest Fully Convertible Debentures,
- Optionally Convertible Debentures,
- Deep Discount Bonds.
Mutual Fund Units :
- Income Schemes,
- Growth Schemes,
- Sectoral Schemes,
- Equity Schemes,
- Money Market Schemes.
Apart from these capital market securities, other investment options available, particularly to individual investors, are Savings Bank accounts, Fixed Deposits in banks, Post-Office Savings Schemes, Unsecured deposits in companies, etc.
A financial instrument (security) is issued under a set of terms and conditions about the payment of interest/dividend to the holder, maturity life, redemption value, etc. Equity shares and debentures are issued by corporate’s under virtually a standard set of terms and conditions-Some of these are statutory terms such as the preference shares in India must be redeemable within a maximum period of 20 years; or rate of dividend on cumulative convertible preference shares need not exceed 10% p.a., or debentures must be credit rated, etc.… Read the rest
The basic types of business entities are sole properitorship and parterships.
Sole proprietorship type of business entity which legally has no separate existence from its owner. Limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. Also debts of the business are debts of the owner in the case of sole proprietorship type of business. A sole proprietorship essentially refers to a individual doing business in his or her own name and in which there is only one owner and it does not pay corporate taxes.
Advantages of Sole proprietorship:
- No additional work needed to start the business
- There are no legal formalities to forming or dissolving a business
- What the business makes, so does the individual
- Owner makes all the decisions rather than consulting with a partner
Disadvantages of Sole proprietorship:
- Will likely have a hard time raising capital
- Hiring employees may also be difficult
- This form of business will have unlimited liability, so that if the business is sued, the proprietor is personally liable
- The life span of the business is also uncertain
- The business owner must also be an all-rounder
Partnership is a type of business entity, where you partner with other individuals to own and run the business. On a higher level, they can be viewed as collection of sole proprietors. By partnering with other individuals, you get access to a bigger pool of capital, skills and other resources to fund and run your business. … Read the rest