Singh & Associates provides expert legal advice and assists its clients in the matters pertaining to investments with regard to the capital market. Financial markets, domestic as well as international, particularly capital markets have been undergoing metamorphic changes in the recent past. Indeed, the intensity and speed of changes in the market place is rendering all veterans, conventional and orthodox, organizations and people redundant at an amazing speed. Dynamics of the capital market commandeers changes in the laws, rules and regulations on a continuing basis.
Summarized overviews of the options available for the investors in the capital market are as follows:
Primary Market refers to new issues of shares by new companies as well as existing companies.
Secondary Market refers to the stock exchanges where an investor can buy or sell shares which are listed on them. As a result of comprehensive and significant recent developments viz. computerization, online trading, dematerialization and depository participation, investors are dealing with a much more transparent and efficient secondary markets.
Equity Shares yield returns in the forms of ‘dividends’ declared by the companies or ‘capital gains’ on sale of equity shares.
The other instruments commonly used in the Capital/ Securities market are debentures, convertible debentures, shares with attached options like warrants etc.
Debt instruments represent contracts where one party is the lender and other party is the borrower. The debt contract specifies the rate of interest, , time of payment of interest, repayment of principal, etc. Maturity refers to the date on which the principal is repaid. Coupon is the rate at which the interest is calculated with reference to the face value. The coupon rate may be fixed for the entire period or may be related to a benchmark rate. In the later case, the instrument is called a floating rate debt instrument.
Various types of debt instruments in India include PSU bonds, Government securities, Treasury Bills, State loans, Corporate Debentures, Bonds from financial institutions, commercial papers, certificates of deposits.
The Secondary market activity for the debt instruments takes place in the debt segment of the exchange. In India, it is dominated by banks and institutions.
A Bond is a loan given by the buyer to the issuer of the instruments. Bonds may be issued by the companies, financial institutions or the government. Bonds can be broadly classified into i) Tax saving Bonds and ii) Regular Income Bonds.
Companies borrow from debenture-holders and generally offer a fixed rate of interest to the investors. Most debentures are redeemed after a specific period. Investors can subscribe to public issue of debentures by companies or buy debentures from the secondary market.
Mutual Fund Schemes
Mutual Funds are entities which collects funds from small investors, pool these funds together and invest into various equity and debt instruments or even Money Market Instruments and government securities. Mutual Funds employ competent finance professional who research the markets effectively, which an individual investor may not be able to manage.
The various types of Mutual Funds include Debt- Oriented Mutual Funds, Equity Oriented Mutual Funds etc. Sometimes, mutual funds and financial institutions float certain Tax Saving Schemes after obtaining government approval for offering tax benefits to investors.'
Futures, options, forwards, warrants and swaps are called derivative products. They derive their value from another asset, index or reference rates.