Getting to Know Capital Market

Capital market deals with financial instruments like shares, bonds, etc.

Capital Market divided into two types is as follows;

  • Primary Market
  • Secondary Market
  • Primary Market:

                              Primary market denotes the New Issue Market means the shares are issued for the first time i.e. Initial Public Offering or IPO is example of Primary Market. It is a dual purpose of investing the funds from the investors as well as financial requirements of company. It means a company has issued a New Share or Bond to the public for the first time.

Once the initial sales is complete, further trading is conducted on the Secondary Market.

  • Secondary Market:

                              Secondary market refers to the financial market to buy and sale financial instruments and securities like stock, bonds, future and options, etc.Secondary market is where those instruments and securities are traded by investors.

After the IPO Company is listed on stock exchange for the further trading.These stock exchange are the secondary market.

What is Stock Market?

Stock Market = Share market = Equity Market; All three mean the same.

These are market where you can Buy or Sell a financial instruments and securities like stock, bond, debentures, commodities, etc.

Types of Shares are as follows:

  • Types of shares:
  • Preference Share

Preference Share:

These shares typically carry a right that gives the holder preferential treatment when dividends are distributed to preference shareholders. Shareholders in this category receive dividend at fixed rate. Preference shares carry no voting rights.

  • Cumulative preference shares:

                                This type of share gives holders the right that, if a dividend cannot be paid for one year, it will be carried forward to successive years. Dividends on cumulative preference shares must be paid.

  • Non-voting ordinary share:

                                        These shares carry the same characteristics as ordinary Shares except with regard to voting rights.

  • Redeemable shares:

                              Redeemable shares are issued on the terms that the company may buy them back at a future date. Till the time of redemption, the shareholders continue to receive dividends.

  • Irredeemable Preference Shares:

                              These shares cannot be redeemed during the life-time of a company. The shareholders however, continue to get dividend income as long as the company continues to be in profits.

  • Deferred Ordinary Share:

                              Deferred Ordinary shares carry fewer rights than ordinary shares. Shares in which dividends are only paid after all other classes of shares have been paid. Shares in which dividends are only paid after a certain date.

  • Convertible Preference Share:

                              Convertible Preference Shareholders may get their holdings converted into ordinary shares, but to specific terms and conditions.

Equity Shares:

                   It is also called as Ordinary Shares. Ordinary shares are the most common type of shares and are standard share with no special rights or retractions. Ordinary shareholders are entitled to voting rights; however, they are the last to be paid if the company is wound up. Equity shares are transferable in nature. They can be transferred from one person to another with or without consideration. The value of equity shares is expressed in the various terms like par value or Face value, Book value, Market value.

  • Equity shareholder is owner to the extent of value.
  • High returns as compared to other investment instruments.
  • Equity shareholder has right to vote.
  • Equity shareholder have right to attend meetings. (AGM/EGM)
  • Equity shareholder has right to receive dividend.

Face Value, Book value and Market value:

Face Value: It is the Original value of stock at which it was issued for the first time.

Book Value: It is the value at which shares have been disclosed in the books of account.

Market Value: Market Value is the current price of the stock prevailing in the market.

(Source- www.moneycontrol.com)

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