FINANCIAL SECTOR AND CAPITAL MARKET
1. FINANCAL MARKET :
The market that deals in money, capital, credit, stocks (shares), bonds, bills, futures, foreign currency etc. It is a marketplace where buyers and sellers participate in trade of above mentioned assets. All types of banks, insurance companies, stock exchanges etc. are constituent of financial market. Financial markets in every economy have two separate segments in the present time, one catering to the requirements of short-term funds and the other to the requirement of long-term funds. The short-term financial market is known as the Money Market while the long-term financial market is known as the Capital Market.
2. EQUITY MARKET :
The equity market (often referred to as the stock market) is the market for trading equity instruments. Stocks are securities that are a claim on the earnings and assets of a corporation. An example of an equity instrument would be common stock shares, such as those traded on the Bombay Stock Exchange.
3. DEBT MARKET :
The debt market is the market where debt instruments are traded. Debt instruments are assets that require a fixed payment to the holder, usually with interest. Examples of debt instruments include bonds (government or corporate) and mortgages.
4. SHARES :
A unit of the capital of a company. When a company is set up, it can raise funds by issuing shares, subject to the permission of market body, like SEBI in India. The buyer of shares or shareholders are entitled to a proportionate share in profits which is called dividends. Shareholders can sell the share along with claim on dividends in the secondary market. Shares are different than bonds which are loans raised by a company. These shares maybe held by individuals or organizations.
5. BONDS :
A financial (debt) instrument issued by government financial institutions and corporate bodies to raise long term capital. The issuer is therefore indebted to the bond holders and is required and is required to pay interest and/or principle amount. Bonds may have a fixed period of maturity or in some cases may be perpetual. In most cases bonds are negotiable, i.e. their ownership can be transferred. This type of investment is backed by the assets of the issuing entity. If a company issues bonds to raise debt capital and subsequently declare bankruptcy, the bondholders are entitled to repayment of their investments from the company’s assets.
6. DEBENTURES :
The primary difference between debentures and other types of bonds is that the former have no such asset backing. Debentures are most often used as a means of raising short term capital to fund specific projects. The bondholder’s investment is expected to be repaid with the revenue those projects generate. This type of debt instrument is backed only by the credit and general trustworthiness of the issuer. Most debentures come with a fixed interest rate. This interest must be paid before dividends are paid to shareholders. Debentures are mainly beneficial to companies by having a lower interest rate than other types of loans, e.g. overdrafts. Debentures come in two types: Convertible Debentures and Non-Convertible Debentures.
7. T-BILLS :
Treasury Bills or T-Bills are issued by the government when it goes to the financial market to raise money. T-Bills are issued when the government need money for a shorter period (while government bonds are issued when it needs debt for a longer period). T-Bills have a maximum maturity of a 364 days. Hence, they are categorized as money market instruments (money market deals with funds with a maturity of less than one year, as against capital market which deals in longer period funds). Treasury Bills are presently issued in three maturities, 91 days, 182 days and 364 days. Treasury bills are Zero Coupon securities and pay no interest. Rather, they are issued at a discount (at a reduced amount) and redeemed at the face value at maturity. For example, a 91 days T bill of Rs 100/- (face value) may be issued at say Rs 97/-, that is, at a discount of say Rs 3 and would be redeemed at the face value of Rs 100/-.
8. MUTUAL FUND :
A fund that is created when a large number of investors put in their money, and is managed by professionally qualified persons with experience in investing in different asset classes – shares, bonds etc. This is set up on the principle of pooled risk and pooled resources with the purpose of giving them the benefit of share market without exposing individually to larger risks of volatility of market. This happens as the professional who manages that fund invests in different securities, thus diversifying the risk. “All eggs are not in the same basket”. Mutual funds are managed by asset management companies or fund managers etc.
9. MASALA BOND :
Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas markets. The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowings and internationalize the Indian currency. The bonds are directly pegged to the Indian currency. So, investors will directly take the currency risk or exchange rate risks. If the value of Indian currency falls, the foreign investor will have to bear the losses, not the issuer which is an Indian entity or a corporate. The issuer of these bonds is shielded against the risk of currency fluctuation, typically associated with borrowing in foreign currency. Foreign investors who want to take exposure to Indian assets and are constrained from doing it directly in the Indian market or prefer to do so from their offshore locations can invest in Masala bonds.
10. SOVEREIGN WEATH FUND :
It is a fund of foreign currency that is meant to be invested in global assets. It is State owned fund and is set up and managed by a central bank or a special purpose vehicle (special body) of the government. It is commonly seen in countries that have substantial foreign currency assets earned by them. The fund is invested in shares, bonds, properties or other areas of potential growth. For example, the world’s largest sovereign wealth fund is Norway’s $1 Trillion.
11. BULL/BEAR :
A Bull Market is a financial market in which prices are rising or are expected to rise. It is characterized by optimism, investor confidence and expectations that strong results should continue. A Bear Market, on the other hand is characterized by falling prices and typically shrouded in pessimism. Bull and Bear Market often coincide with the economic cycle, which consists of four phases: expansion, peak, contraction and trough. The onset of bull market is often a leading indicator of economic expansion.
12. INITIAL PUBLIC OFFERING (IPO) :
Initial sale of shares by a company to the public. An IPO is underpriced if the issue price is less than the market price and is overpriced if the issue price is more than the market price. The money paid by the investor directly goes directly to the company in contrast to the shares at stock exchange where money passes between investors. An underwriter (e.g. An Asset Management Company) helps the IPO issuer in determining type and price of the share and time to bring it to the market.
13. INFLATION INDEXED BOND :
Inflation risk has been a potential problem with fixed income securities, especially with the fixed maturity products. If the inflation rate is higher than the interest rate being received on the fixed income products, it diminishes the purchasing power of the consumer. Inflation Indexed Bond (IIB) is a bond issued by the Sovereign, which provides the investor a constant return irrespective of the level of inflation in the economy. The main objective of Inflation Indexed Bonds is to provide a hedge and to safeguard the investor against macroeconomic risks in an economy.
14. INFRASTRUCTURE DEBT FUND :
IDFs are investment vehicles which can be sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors, specially insurance and pension funds can invest through units and bonds issued by the IDFs. IDFs would essentially act as vehicles for refinancing existing debt of infrastructure companies, thereby creating fresh headroom for banks to lend to fresh infrastructure projects. IDF-NBFCs would take over loans extended to infrastructure projects which are created through the Public Private Partnership (PPP) route and have successfully completed one year of commercial production.
Share
& Comment
Tweet