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What is Capital Market?



Capital Market:
It is a market where financial instruments are purchased and sold in long term basis like equity, debentures, bonds etc. It provides a place for investors and companies whether they are private or public to transact. It helps the companies to raise capital and the investors to invest their savings for earning dividend and interest. The capital market helps to provide the long term funds through debentures, bonds etc.
Capital market is divided into two: Primary market and Secondary market. Primary market is a market where new shares or debentures are issued to the public. In this market the new and fresh funds are raised by companies or government.  Shares or debentures are issued first time in the market for setting up the new companies operation. The capital raised is used for purchasing the fixed assets. Primary market is also known as New Issue market.
In secondary market the existing stocks are issued to raise capital by the company whether it is public or private or government. Those shares or debentures are issued which are already traded in the market. It is also known as stock market or stock exchange.

Raises money in primary market:
There are four ways to raise the money in primary market:
  • ·         Preferential allotment: The stocks issued by listed company to selected investors at a lower than market price.
  • ·         Right Issue: The right are given to existing shareholders to purchase the stocks less than the market price.
  • ·         Private placement: The stocks are issued by unlisted company to a limited number of investors and the identity of investors is not known.
  • ·         Public Issue: The stocks are issued by company to the public. The information of public issue of security is fully disclosed by company to investors.


New Issue market intermediaries:

Underwriters: It is a financial institution or an individual person who has promise to purchase all the shares or stocks which are not subscribed by public to issuing company. The company pay fixed commission to underwriters for their services.
Stockbroker: A person who buys and sells stock for investors or deal with investors is known as stockbrokers. The person is a member of a stock exchange.
Banker of an Issue: Bank can accept application of stocks if the bank gets certificate from stock exchange to accept application and money on behalf of stock issuing company.
Portfolio consultant: A person or company who manage the securities portfolio which contains different stocks to reduce the risk factor and exceed the profit is known as portfolio consultants. The securities is managed by professionals who have a knowledge about market trend and know the factors which affects more to portfolio or which does not. They are constantly analysing the market to earn the profit from the market fluctuations in different conditions.
Debenture trustees: They are the trustees who insure the security of debenture holders’ interest. It is necessary to appoint debenture trustees before issuing a debenture to public.
 Merchant Bankers: They accept money from investors  and also act as a fund management for the companies.


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