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    Types of Markets

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    Manas Jain
    Equity markets allow companies to issue stock/shares to raise capital from investors in exchange for ownership stakes. Stocks can be traded on exchanges. Debt markets allow companies and governments to raise funds from investors by issuing debt instruments like bonds and debentures which pay interest. Key differences are that equity capital represents ownership while debt capital is borrowing that must be repaid, and equity is higher risk but can provide greater returns through share price growth or dividends.

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    Types of Markets

    Uploaded by

    Manas Jain
    10 views8 pages
    Equity markets allow companies to issue stock/shares to raise capital from investors in exchange for ownership stakes. Stocks can be traded on exchanges. Debt markets allow companies and governments to raise funds from investors by issuing debt instruments like bonds and debentures which pay interest. Key differences are that equity capital represents ownership while debt capital is borrowing that must be repaid, and equity is higher risk but can provide greater returns through share price growth or dividends.

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    TYPES OF MARKETS

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    Equity markets allow companies to issue stock/shares to raise capital from investors in exchange for ownership stakes. Stocks can be traded on exchanges. Debt markets allow companies and governments to raise funds from investors by issuing debt instruments like bonds and debentures which pay interest. Key differences are that equity capital represents ownership while debt capital is borrowing that must be repaid, and equity is higher risk but can provide greater returns through share price growth or dividends.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    10 views8 pages

    Types of Markets

    Uploaded by

    Manas Jain
    Equity markets allow companies to issue stock/shares to raise capital from investors in exchange for ownership stakes. Stocks can be traded on exchanges. Debt markets allow companies and governments to raise funds from investors by issuing debt instruments like bonds and debentures which pay interest. Key differences are that equity capital represents ownership while debt capital is borrowing that must be repaid, and equity is higher risk but can provide greater returns through share price growth or dividends.

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    © All Rights Reserved
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    of 8

    TYPES OF

    MARKETS:-
    EQUITY
    AND DEBT
    BY- MANAS ,
    ABHISHEK
    What is Equity market?
    An equity market is a market in which shares of companies are issued and traded, either through exchanges or
    over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy.
    It gives companies access to capital to grow their business, and investors a piece of ownership in a company with
    the potential to realize gains in their investment based on the company's future performance.

    Trading in an Equity Market


    In the equity market, investors bid for stocks by offering a certain price, and sellers ask for a specific price. When
    these two prices match, a sale occur. When a buyer will pay any price for the stock, they are buying at market
    value; similarly, when a seller will take any price for the stock, they are selling at market value.
    When a company offers its stock on the market, it means the company is publicly traded, and each stock
    represents a piece of ownership. This appeals to investors, and when a company does well, its investors are
    rewarded as the value of their stocks rise.
    The risk comes when a company is not doing well, and its stock value may fall. Stocks can be bought and sold
    easily and quickly, and the activity surrounding a certain stock impacts its value.
    WHAT IS EQUITY?
    • PLAIN AND SIMPLE, EQUITY IS A SHARE IN THE OWNERSHIP OF THE
    COMPANY
    • EQUITY REPRESENTS A CLAIM ON THE COMPANY’S ASSET AND EARNING.
    • AS YOU ACQUIRE MORE EQUITY, YOUR OWNERSHIP STAKE IN COMPANY
    BECOMES GREATER.
    • WHETHER YOU SAY SHARE, EQUITY, OR STOCK, IT ALL MEANS THE SAME
    THING who own equity shares in a company are entitled to ownership rights such as :-
    Investors

    1. Share in the profits of the company (in the form of dividends)


    2. Share in residual funds after liquidation/ winding up of the company
    3. Voting rights
    Why should one invest in equities in particular?
    • Equities are considered the most rewarding, when compared to other investment options if held over a long
    duration
    • Research studies have proven that investment in some shares with a longer tenure of investment have yielded
    far superior returns than any other investment. The average annual return of the stock market over the period
    of fifteen years, if one takes the Nifty index as the benchmark to compute the returns, has been around 16%.

    EQUITY INSTRUMENTS:-

    Common Stocks:- Common stock is a security that represents ownership in a corporation. Holders of
    common stock elect the board of directors and vote on corporate policies. This form of equity ownership
    typically yields higher rates of return long term.

    Preference Shares:- Preference shares, more commonly referred to as preferred stocks, are shares of a
    company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. If
    the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before
    common stockholders.
    What is Debt?
    Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon
    value to another party, the creditor. Debt is a deferred payment, or series of payments, which
    differentiates it from an immediate purchase. Commercial debt is generally subject to
    contractual terms regarding the amount and timing of repayments of principal and interest
    Loans , bonds, notes, and mortgages are all types of debt. In financial accounting , debt is a
    type of financial transaction as distinct from equity.

    Why to invest in Debt Market?


    The fundamental reason for investing in debt funds is to earn a steady interest income and
    capital appreciation. The issuers of debt instruments pre-decide the interest rate you will
    receive as well as the maturity period. Hence, they are also known as ‘fixed-income’ securities.
    What is Debt Instrument?
    A debt instrument is a tool an entity can use to raise capital. It is a documented, binding obligation that provides
    funds to an entity in return for a promise from the entity to repay a lender or investor in accordance with terms
    of a contract. Debt instrument contracts detail the provisions of the deal, including the collateral involved, rate
    of interest, schedule for interest payments, and time frame to maturity.
    Types of Debt Instruments?
    BONDS:-The term bond suggests that someone owes money to another person. In these, an investor puts money
    into corporate or government assets in exchange for a fixed rate of return. If a firm wants to expand its
    operations, it might procure money from private investors.

    DEBENTURES:- are not secured in any way The organization issues these in order to raise medium and long-
    term capital. They are components of the capital structure of the firm. Debentures appear on the balance sheet,
    but they are not included in the share capital.

    FIXED DEPOSITS:- A fixed deposit is a financial product offered by banks or Non-Banking Financial
    Corporations that pays a higher rate of interest to investors than a typical savings account. When an account
    holder makes a fixed deposit, the amount of profit or interest earned on the investment is predetermined
    DIFFRENCE BETWEEN DEBT AND EQUITY
    DEBT CAPITAL EQUITY CAPITAL

    Debt Capital is the borrowing of funds from individuals and Equity capital is the funds raised by the company in
    organisations for a fixed tenure. exchange for ownership rights for the investors.

    Debt Capital is a liability for the company that they have to Equity Capital is an asset for the company that they show in
    pay back within a fixed tenure. the books as the entity’s funds.

    Debt Capital is a short term loan for the organisation. Equity Capital is a relatively longer-term fund for the
    company.

    Debt Capital is a low-risk investment. Equity Capital is a high-risk investment

    The lender of Debt Capital gets interest income along with Shareholders get dividends/profits on their shares.
    the principal amount.

    Debt Capital is either secured (against the surety of an Equity Capital is unsecured since the shareholders get
    asset) or unsecured ownership rights.

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