Broadly, capital market instruments fall into two categories – debt and equity. However, liberalisation of the economy and a global approach has resulted in the introduction of innovative instruments with hybrid characteristics – displaying features of both debt and equity.
The Instruments
The market is divided into two segments – the primary market which is for floating of new issues for subscription and the secondary market where existing instruments are traded. The instruments dealt in the markets are generically classified into shares, bonds, debentures, treasury bills, and fixed deposits.
The Issuers
These instruments are floated by companies, banks, financial institutions, quasi-government bodies, statutory authorities and, central and state governments to mobilize resources for financing capital expenditure programs or to meet budgetary development requirements.
The Investors
Individuals or organisations that have surplus funds purchase these instruments to earn interest/dividend or profit on sale of the instrument in the secondary market.
The Markets
With the advent of internet technology, capital market instruments are available and can be traded not only in the physical market but also online. Government securities are sold in auction by the Reserve Bank of India.
The Risk
The risk profile differs between instruments. Equity shares carry the highest risk while government securities are least risky because of sovereign assurance for payment of interest and repayment of principal.
