1. Capital Markets
- Primary Market: Corporates raise funds by issuing shares to the public.
- Investors get shares and become part-owners.
- Examples: IPOs, FPOs.
- Secondary Market: Shares are traded among investors.
- Facilitated by stock exchanges.
- Price determined by demand & supply.
- Key Instruments:
- Equity: Ownership with variable returns based on company performance.
- Debt: Fixed income instruments like Debentures, Bonds (secured/unsecured).
2. Money Markets
- Short-term instruments (maturity ≤ 1 year):
- Call Money: Overnight borrowing/lending between banks.
- Treasury Bills (T-Bills): Government-issued, short-term debt.
- Commercial Papers (CPs): Unsecured corporate borrowing.
- Certificate of Deposits (CDs): Short-term Bank instruments.
- Repo Transactions: Borrowing by selling securities with a repurchase agreement.
- Repo Rate: Borrowing cost set by RBI.
- Reverse Repo: Lending by buying securities with a resale agreement.
3. Raising Capital
- Equity: Ownership in a company with voting rights.
- Debt: Borrowing funds (interest-based, no ownership rights).
- Types: Non-convertible debentures (NCDs), Convertible debentures.
- Hybrid Instruments: Combines features of equity and debt.
- E.g., Preference Shares with fixed dividends.
4. Commodity Markets
- Purpose: Trading raw materials like gold, silver, oil, and agricultural products.
- Market Types: Spot Market (immediate delivery), Futures Market (future delivery).
- Participants: Hedgers (reduce risk), Speculators (profit from price changes).
5. Mutual Funds (MFs)
- Definition: Pool of funds professionally managed to invest in securities.
- Types:
- Equity Funds: High-risk, high-return.
- Debt Funds: Fixed income securities.
- Balanced Funds: Mix of equity and debt.
- Advantages: Diversification, professional management, SIP options.
6. SEBI (Securities and Exchange Board of India)
- Role: Regulates capital markets, protects investors, enforces compliance.
- Functions:
- Regulation: Sets norms for IPOs, secondary market practices.
- Development: Introduced dematerialization, screen-based trading.
- Investor Protection: Education, grievance redressal mechanisms.
7. Government Securities (G-Secs)
- Definition: Risk-free bonds issued by the Government.
- Types:
- Treasury Bills (T-Bills): Maturity ≤ 1 year.
- Dated G-Secs: Maturity > 1 year.
- Retail Direct Scheme: Individual investors can trade G-Secs via RDG accounts.
8. Important Terms
- IPO: Initial Public Offering; first-time public share issuance.
- Repo Rate: RBI rate for short-term borrowing.
- Futures Contract: Agreement to buy/sell at a future date at a set price.
- NAV (Net Asset Value): Value per unit in mutual funds.
Summarizing:
| Main Idea | Explanation | Examples | Key Terms |
|---|---|---|---|
| Capital Markets | Facilitate raising long-term funds by issuing shares and other securities to the public. | Primary Market: IPOs; Secondary Market: Stock Exchanges. | Equity, Shares, Debentures, Bonds, Stock Exchanges, Mutual Funds. |
| Money Markets | Short-term investment instruments with maturity up to one year. | Treasury Bills (T-Bills), Commercial Papers (CPs), Certificates of Deposit (CDs). | Call Money, Repo, Reverse Repo, Collateralized Borrowing and Lending Obligation (CBLO), Liquidity Adjustment Facility (LAF). |
| Raising Capital | Companies raise funds through equity (ownership instruments), debt (loan instruments), or hybrid instruments. | Equity Shares, Debentures, Preference Shares, Bonds, Convertible Debentures. | Non-Convertible Debentures (NCD), Fully Convertible Debentures (FCD), Preferred Stock. |
| Mutual Funds (MFs) | A pool of funds collected from investors and professionally managed to invest in securities such as stocks, bonds, or money market instruments. | Growth Funds (Equity), Income Funds (Debt), Balanced Funds (Mix of Equity and Debt). | Systematic Investment Plans (SIPs), Equity Linked Savings Scheme (ELSS). |
| Commodity Markets | Platforms for trading commodities such as gold, silver, oil, and agricultural products. | Futures Contracts for crude oil; Gold trading on commodity exchanges. | Spot Market, Futures Market, Hedging, Speculation. |
| SEBI’s Role | Regulates securities markets to protect investors, develop markets, and enforce compliance. | Market regulation through disclosure norms, investor education programs. | Securities and Exchange Board of India (SEBI), Insider Trading, Investor Grievance Mechanism. |
| Government Securities | Bonds issued by the government with fixed maturity and interest payments; used for borrowing by the government. | Treasury Bills, State Development Loans (SDLs), Sovereign Gold Bonds (SGBs). | G-Secs, Auction, E-Kuber, Retail Direct Gilt Account (RDG). |
MCQ
Q1: What is the primary purpose of the capital market?
A) Long-term borrowing and lending
B) Short-term borrowing and lending
C) Trading in commodities
D) Issuing currency
Answer: A
Q2: Which of the following is NOT a capital market instrument?
A) Equity shares
B) Debentures
C) Treasury Bills
D) Preference shares
Answer: C
Q3: What is the maximum maturity period for money market instruments?
A) 5 years
B) 3 years
C) 1 year
D) 10 years
Answer: C
Q4: Which money market instrument is issued at a discount and does not carry interest?
A) Bonds
B) Treasury Bills
C) Debentures
D) Preference Shares
Answer: B
Q5: What does the term “Repo Rate” refer to?
A) Interest rate charged by banks for long-term loans
B) Rate at which RBI lends to banks by purchasing securities
C) Rate for fixed deposits in banks
D) Rate of return on equity investments
Answer: B
Q6: Which type of mutual fund is suitable for investors seeking fixed income?
A) Growth Fund
B) Equity Fund
C) Debt Fund
D) Balanced Fund
Answer: C
Q7: What is the lock-in period for an Equity-Linked Savings Scheme (ELSS)?
A) 1 year
B) 3 years
C) 5 years
D) 7 years
Answer: B
Q8: What is the primary difference between the spot market and the futures market?
A) Spot market deals in physical goods, futures deal in currencies.
B) Spot market is for immediate delivery, futures market is for future delivery.
C) Spot market is regulated by SEBI, futures market is not.
D) Spot market is for short-term instruments, futures are long-term.
Answer: B
Q9: Which of the following is NOT a commodity traded in commodity markets?
A) Gold
B) Crude Oil
C) Mutual Fund Units
D) Agricultural Products
Answer: C
Q10: What is one of the key functions of SEBI?
A) Printing currency
B) Regulating the money supply
C) Protecting investors in securities markets
D) Determining repo rates
Answer: C
Q11: When was SEBI established?
A) 1988
B) 1990
C) 1992
D) 1995
Answer: C
Q12: Which of the following is a characteristic of Government Securities (G-Secs)?
A) High credit risk
B) Fixed maturity
C) Issued only to corporations
D) No interest payments
Answer: B
Q13: What platform allows retail investors to invest directly in G-Secs?
A) NSE
B) BSE
C) E-Kuber
D) Retail Direct Gilt (RDG)
Answer: D) Retail Direct Gilt
Q14: Which instrument is issued by banks to raise short-term funds?
A) Commercial Papers
B) Certificates of Deposit
C) Debentures
D) Bonds
Answer: B) Certificates of Deposit
Q15: What is the tenure of Treasury Bills issued by the Government of India?
A) 30, 60, and 90 days
B) 91, 182, and 364 days
C) 180, 270, and 365 days
D) 1 year, 2 years, and 3 years
Answer: B) 91, 182, and 364 days