Capital Market | What is Capital Market? Categories of Capital Market: Instruments of Capital Market, Primary and Secondary Market - financebrother

Capital Market
The capital market is the market for financing long-term capital requirements, generally more than one year.

The capital market is categorized into two parts: # Non- Securities Market and #Securities Market.

1. Non-Securities Market:

• Mutual Funds
• Fixed Deposits
• Provident Funds

Mutual Funds
Mutual funds are the pooling of funds from a number of investors who share a common investment goal and invest in the securities market. The money of mutual fund investors is managed by professional fund managers. To know more about mutual funds (Click Here).

Fixed Deposits
A fixed deposit is a capital market financial instrument offered by banks or NBFCs in which investors deposit their excess savings in a lump sum for a specific time period, generally a year or more, on which they receive a higher rate of interest than a regular savings account.

Provident Funds
A provident fund is a long-term savings fund to favors the employee's retirement. It is an investment fund that is voluntarily established by the employer and the employee. It is the employee and employer contribution fund, with 3%-15% deducted monthly from the employee's basic salary. 

2. Securities Market further classified into two categories:

2.1 Primary Market: The primary market is the marketplace where the first sale of the securities to investors is made directly by the issuer of the securities.

• Initial Public Offerings (IPOs)
• Private Placement

Initial Public Offerings (IPOs)
An initial public offering (IPO), as the name implies, is a process by which private companies or corporations issue shares (a small portion of their ownership) to investors in order to become public limited companies.

Private Placement
It is a process of funding in which companies or corporations invite specific investors to invest privately in their organization. It is an alternative to an IPO for companies to raise funds for their expansion and growth.

2.2 Secondary Market: Secondary market is the market place where the buying and selling of the already issued securities takes place between the investors. In which one investor who does not hold those securities purchases from another investor who holds those securities. The stock market is an example of the secondary market.

• Equity
• Debt
• Commodity
• Derivatives

Equity
Equity is the capital invested by the promoters to perform their companies' business operations. In the balance sheet, it is calculated by deducting all the external liabilities from the total assets. It represents the worth of the organization. It helps to identify the book value of the share price of the companies, which is the equity value on the balance sheet divided by the total number of equity shares outstanding.

Debt
Debt is an outside liability for organizations because it must be repaid along with a predetermined prevailing interest amount at a certain rate. They are the company's creditors because it borrows money from someone else to run its business.

Commodity
A commodity is an economically valuable good like food grains, precious metals, pulses, etc. A commodity is considered a raw material used to manufacture finished goods. Investors buy and sell those commodities either on the spot or through derivatives contracts such as futures and options traded on commodities exchanges.

Derivatives
A derivative is a type of financial contract that derives its value from an underlying asset. Assets include bonds, equities, commodities, etc. For more information about derivatives, (click here).