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Types of capital market instrument
Difference between equity- debt securities
The capital market is the market for securities
where companies and the government can rise long
It is a place where buyers and sellers of securities
can enter into transactions to purchase and sell
shares, bonds and debentures.
According to the Companies Act 1956, equity shares
are that part of the share capital of the
company, which are not preference shares.
They are called as ordinary shares or common stock
or voting share.
These shareholder are the real owner of the
The return on equity shares depends on the
performance profitability of the company.
MERITS OF EQUITY SHARES
A permanent source of finance to the company
No fixed rate of dividend
Easy liquidity and marketability
LIMITATIONS OF EQUITY
No guarantee on returns to shareholders
Loss of managerial control
Preference shares are known as preferred stock.
Preference share capital has two priorities i.e.,
in the repayment of capital and payment of
Preferred stocks usually carry no voting rigths.
MERITS OF PREFERENCE SHARE CAPITAL
From Company’s point of view
Absence of voting rights
No dilution of control
LIMITATIONS OF PREFERENCE SHARES
From Investor ’s point of view
Not an attractive investment
No right to participate in the management
When a corporation is in need of fund in addition
to share capital it borrows money by issuing
The debenture holder gets interest which is fixed
at the time of issue.
TYPES OF DEBENTURES
MERITS OF DEBENTURES
No loss of managerial control
A Flexible source of finance
Reduces burden of tax of the company
LIMITATION OF DEBENTURES
Fixed rate on interest
Companies may have to mortgage their assets
Not an attractive investment from company’s
point of view.
Bonds are issued by public authorities, credit
institutions, companies and super national institutions
in the primary market.
A bond is a negotiable certificate which entitles the
holder of repayment of the principal sum plus interest.
The most common process of issuing bonds is through
Owner of the company.
Creditor of the company.
Get Dividend only when
company earns sufficient profits.
Provides steady in come to the
Have voting rights.
No voting rights.
Secured in nature.
Share capital of the company.
Borrowed capital of the company.
Capital market plays an important role in
ensuring the emergence of a vigorous and efficient
It facilitates the internationalization of an
economy by linking it with the rest of the world.
Services In IndiaBenson Kunjukuju
Equity Market-IIAnita Bobade.