What is the Money Market?

A random course of financial institutions, bill brokers, money dealers, banks, etc., wherein dealing on short-term
financial tools are being settled is referred to as Money Market. These markets are also called wholesale
markets.

In India, money markets serve an essential objective of providing liquid cash to borrowers and fund providers for
a small period of time, while keeping a balance between the supply and demand short-term funds. The important
money market instruments in India today cover call money, commercial papers, certificates of deposit, treasury
bills, and forward rate agreements.

Money Market is a disorganised market, so the dealing is done off the public exchange market, i.e. Over The
Counter (OTC), within two bodies by using email, fax, online and phones, etc. It supports the industries to
accomplish their working capital demand by circulating short-term funds in the economy.

Features of Money Market

A few general money market features are:

 It is fund-term market funds.

 It’s maturity period up to one year.
 It trades with assets that can be transformed into cash easily.
 All the transactions take place through phone, email, text, etc.
 Broker not required for the transaction
 The components of a money market are the Commercial Banks, Non-banking financial companies and
Central Bank, etc.

What is Capital Market?

A kind of financial market where the company or government securities are generated and patronised with the
intention of establishing long-term finance to coincide the capital necessary is called Capital Market.

In this market, the buyers use funds for longer-term investment. The nature of the capital market is risky markets.
Therefore, it is not used for short-term funds investment. Most of the investors obtain the capital markets to
preserve for education or retirement.

Features of Capital Market

Important features of the capital market are:

 Unites entrepreneurial borrowers and savers

 Deals with long-term investments.
 Agents are required.
 It is controlled by government rules and regulations.
 Deals in both commercial and non-commercial securities.
 Foreign Investors.

Money Market Capital Market

                                                                           Definition
 A random course of financial institutions, bill brokers, A kind of financial market where the company or government
money dealers, banks, etc., wherein dealing on short-term securities are generated and patronised with the intention of
financial tools are being settled is referred to as Money establishing long-term finance to coincide with the capital
Market. necessary is called Capital Market.

                                                                    Market Nature

Money markets are informal in nature. Capital markets are formal in nature.

                                                                Instruments involved

Commercial Papers, Treasury Certificate of Deposit, Bills, Bonds, Debentures, Shares, Asset Secularisation, Retained
Trade Credit, etc. Earnings, Euro Issues, etc.

                                                                   Investor Types

Commercial banks,  non-financial institutions, central bank, Stockbrokers, insurance companies, Commercial banks,
chit funds, etc. underwriters, etc.

                                                                 Market Liquidity 

Money markets are highly liquid. Capital markets are comparatively less liquid.

                                                                       Risk Involved

Money markets have low risk. Capital markets are riskier in comparison to money markets.

                                                             Maturity of Instruments

Instruments mature within a year. Instruments take longer time to attain maturity

                                                                  Purpose served

To achieve short term credit requirements of the trade. To achieve long term credit requirements of the trade.

                                                               Functions served

Increasing liquidity of funds in the economy Stabilising economy by increase in savings

                                                     Return on investment achieved

ROI is usually low in money market ROI is comparatively high in capital market

Primary Market A primary market is defined as the process wherein the market becomes a source of
securities. In the market, securities are created for the people who are investing to buy. These securities
are issued in the stock exchange markets so that the companies, as well as the government are able to
provide capital. The major function of the primary markets is to enable the company to provide long-term
funds. These funds are made by the issue of debentures. An IPO (Initial Public Offering) is a common
example of a primary market. An IPO is defined as the process wherein the company issues stocks in the
name of the public. An individual needs to have prior knowledge of these markets before investing. The
main objective of the primary market is to sell the new shares issued.

Features of Primary Market

1. New Issues: The fundamental feature of the primary market is that it is associated with new issues. That

is why the primary market is called as the (NIM) new issue market.

2. Place: Primary market is not a particular place but an activity of issuing, buying, and selling.

3. Floating Capital: Primary market issues capital through public issue, offering for sale, private placement,

and right issue. This is how the capital is raised for funding the companies and the government.

4. It comes before the Secondary Market: All the transactions are primarily made in the primary market.

Secondary market comes much later.

Secondary Market

The secondary market is defined as the place wherein the issued shares of the company are traded among the
investors. In layman's terms, the investors can easily buy or sell the shares without the interference of the
company. The secondary market can be categorized into four segments, i.e., auction market, direct search
markets, dealer market, and broker market. The significant examples of the secondary market include NYSE (New
York Stock Exchange), NSE (National Stock Exchange), etc. One of the major disadvantages of the secondary
market is that the price fluctuates very often. This can sometimes lead to an immediate loss of money. There are
several other features associated with secondary markets that we will discuss later. Now, let us discuss the
fundamental contrasting points between these markets.

Features of Secondary Market

1. Liquidity: The secondary market provides liquidity to all the traders. Any investors/ sellers who are in

need of money can sell their securities to any number of buyers.

2. Adjustable Price: Any development in the securities leads to price fluctuation in the market. The market

adjusts itself to the price of the new securities.

3. Transaction Cost: The transaction cost in the secondary market is very low due to the high amount of

transactions.

4. Rules: The investors in the secondary market have to follow all the rules given by the stock exchange

and the government. Higher rules and regulations ensure the safety of securities of the investors.

Basis of
Primary Market Secondary Market
Comparison

Meaning A platform that offers security for the first The market where investors trade already iss
 time is the primary market. securities is known as the secondary market.

Another name New issue market (NIM). Aftermarket or share market.

Products are limited and mainly include IPO Many products, such as shares, warrants,
Type of product
and FPO (Follow-on Public Offer). derivatives, and more, are available.

All the purchases in this market happen The issuer (company raising capital) is not in
Purchase type
directly. in the trading.

Frequency of Security can be sold to the investors just Here the traders can buy and sell the shares
selling once in this market. often they want.

The company and the investors are involved Here investors buy and sell the securities am
Parties involved
in buying and selling the security. themselves.

Beneficiary Company Investor

Several tools are available to the investors to

Investors primarily rely on prospectus and
How to identify them pick good investments, such as price to
word-of-mouth publicity to pick an
investment? earnings (P/E), price to book (P/B), price to s
investment in the primary market.
(P/S), and more.

Underwriters are the intermediaries in the

Intermediary Here the intermediaries are the brokers.
primary market.

Help new and existing companies to raise It does not provide funding to companies; ins
Purpose
capital for expansion and diversification. it helps investors to make money.

The company sells the shares to the Both buy and sell-side investors work toward
Price
investors at a fixed price. finding the best price for the trade.

There is no organization set up for the There is a geographical setup and organizatio
Presence
primary market presence for the secondary market.

Rules and The company issuing securities goes through Here investors and brokers need to follow the
Regulations a lot of regulation and due diligence. set by the exchange and the governing agen
What is the meaning of Equity Share Capital?

Equity Share Capital is the funds generated by a company through issuing Equity shares (also known as ordinary
shares). It consists of company shares that the owners decide to sell to individual investors and institutions in
the stock market. The Equity Shareholders become stakeholders in the organisation, and these investors are
eligible for both ownership and voting rights in the company to select their management.

Some of the features of Equity Shares are as follows:

 Equity Share Capital Remains with the organisation, and the investors can claim it back only when the
company winds up their operations. It is like a perpetual source of funding for the organisation.
 They get a percentage of the company’s profits, but only after preference shareholders get their
dividend.
 The Equity Shareholders do not get a fixed rate of dividend. The dividend amount depends on the surfeit
capital with the company after paying the preference shareholders.
 Equity shareholders get voting rights in the selection of the company’s management.

What is the meaning of Preference Share Capital?

Preference Share Capital is the funds generated by a company through issuing preference shares (also known
as Preference stock). Preference Shareholders have the first right to receive dividends even before equity
shareholders. They are also part owners of the company, but they do not get any voting rights to select its
management. They are entitled to a fixed rate of compensation every time the company decides to declare a
dividend. They also have the right to claim repayment of capital if the company dissolves.

Some of the features of Preference Shares are as follows:

 Preference Shareholders have the first right to claim the company’s assets whenever they decide to
wind up their operations.
 Preference Shareholders have the first claim to their dividend.
 The Preference Shareholders get a fixed rate of dividend.
 Preference shareholders do not get voting rights in the selection of the company’s management.
 Preference Shares have features of both debt and equity investment. They are also known as a hybrid
security option for their investors.

Meaning of Debentures

A debenture is a debt tool used by a company that supports long term loans. Here, the fund is a borrowed capital,
which makes the holder of debenture a creditor of the business. The debentures are both redeemable and
unredeemable, freely transferable with a fixed interest rate. It is unsecured and sustained only by the issuer’s
credibility. 

Unlike shareholders, the debenture holders who are the creditor of the company do not hold any voting rights.
The debentures are of following types:

 Secured Debentures
 Convertible Debentures
 Unsecured Debentures
 Registered Debentures
 Non-convertible Debentures
 Bearer Debentures
 Preference Share Capital Equity Share Capital

Definition

Preference Share Capital is the funds that a company has generated by issuing Equity Share Capital is the funds that a company has
preference shares. generated by issuing Equity shares.

Dividend Rate

The Dividend Rate in the case of Preference Share Capital is not changeable. The Dividend Rate is changeable or fluctuating in the
case of Equity Share Capital.

Voting Rights

Preference Shareholders do not have any voting rights in the selection of the Equity Shareholders have voting rights in the
management. selection of the management.

Participation in Management

Preference Shareholders do not have the right to participate in the management Equity Shareholders holders have the right to
decisions. participate in the management decisions.

Claim to assets of the company

Preference Shareholders have a right to claim over the company’s assets whenever Equity Shareholders do not have any right to claim
they decide to wind up their operations. their assets whenever they decide to wind up their
operations.

Preference in paying dividend

Preference shareholders get the first preference when the company pays a dividend. Equity shareholders get second preference when the
company pays a dividend.

Types of Shares

The different types of Preference Shares are as follows: The different types of Equity Shares are as follows:

 Cumulative Preference Shares  Authorised Share Capital

 Participating Preference Shares  Issued Share Capital
 Redeemable Preference Shares  Subscribed Share Capital
 Convertible Preference Shares  Paid-up Share Capital
 Non-Cumulative Preference Shares  Rights Share
 Non-Participating Preference Shares  Bonus Share
 Non-Redeemable Preference Shares  Sweat Equity Share
 Non-Convertible Preference Shares

Arrears of Dividend

Preference Shareholders are eligible to get arrears of unpaid dividends from Equity Shareholders are not eligible to get arrears of
previous years. They can get it along with the dividend of the current year, except unpaid dividends from previous years.
for non-cumulative preference shares.

Convertibility
 Preference Shares are eligible to get converted into Equity Shares. Equity Shares can never be eligible to get converted
into Preference Shares.

Risk

Preference Shareholders are at a lower risk compared to Equity Shareholders. Equity Shareholders are at a higher risk compared to
Preference Shareholders.

Meaning of Shares

A tiny part of a firm’s capital is identified as shares and is usually sold in the stock market to raise funds for a
business. The price at which the investor buys the share is known as share price. The shareholders are qualified
to receive the dividend as mentioned by an organisation because they are the owner of a portion of share iv the
company. 

The shares are transferrable/movable and are broadly categorized into two different sections.

 Equity share
 Preference share

Shares Debentures

What it means?

Shares are the company-owned capital. Debentures are the borrowed capital of the company.

Holder

The person who holds the ownership of the shares is The person who holds the ownership of the Debentures is called
called as Shareholders. as Debenture holders.

Status

Owners. Creditors

Mode or return

Shareholders are given the dividends. Whereas, debenture holders are given interest.

Payment of return

Dividends can be paid to the shareholders out of profits Interest can be paid to the debenture holders, regardless of if the
earned by the company. company has earned profits.

Voting rights

Shareholders possess voting rights. Debenture holders do not possess any right for voting.

Conversion

Shares cannot be converted into Debentures. However, debentures can easily be converted into Shares.

Trust Deed

Trust deed is not carried out in the shares. When the debentures are circulated to the public, a trust deed has
 to be carried out.

PROSPECTUS
Prospectus is any document by which a company invites the applications for the issue of its shares or debentures. As per the
Companies Act, a prospectus is any document described or issued as such and also includes red herring prospectus referred
to in Section 32 or a shelf prospectus referred in Section 31 or any notice, or circular or advertisement or other document
which invites the public for subscription or purchase of securities of a company.

Contents of a Prospectus

Following are the contents of a prospectus:-

 The prospectus must be dated and signed

 The prospectus should have the name and address of the registered office of the company, Chief Financial
Officer, auditors, legal advisors, company secretary, bankers, trustees and such other persons as may be
prescribed
 The prospectus should have the opening and closing date of the issue and of the allotment letters and
refunds in prescribed time
 Main objective of the public offer, terms of issue and other particulars which may be prescribed
 Should contain the main object and present business of the company along with the location of the company
 Prospectus should contain the disclosures of the sources of the promoter’s contribution in the prescribed
manner
 Every prospectus issued should state that a copy has been sent to the Registrar for registration.

Apart from the above contents, any other contents which may be prescribed are also included in the prospectus in the
prescribed manner.

Kinds of Prospectus

A prospectus is of various kinds. Some of them are as follows:-

 Shelf Prospectus

A shelf prospectus is a prospectus which is issued by any class or companies prescribed by SEBI for one or more issues of
securities, without the issue of a new prospectus. A shelf prospectus is issued when a company offers one or more securities
to the public. The validity period of a shelf prospectus is not more than one year. Usually, a shelf prospectus is issued by
banks and financial institutions. In case of any changes in the issue, it needs to be given in the Information Memorandum.

 Red Herring Prospectus

A red herring prospectus is a prospectus which does not includes the full details of the price or quantum of securities to be
issued. A red herring prospectus needs to be filed with the Registrar at least 3 days prior to the opening of subscription list. A
red herring prospectus is not a final prospectus as the company has the option to update it several times before issuing the
final document.

 Deemed Prospectus

A deemed prospectus is any document by which the offer of securities is made to the public. Any document by which the
shares or securities are offered to the public is called to be deemed prospectus.

 Abridged Prospectus

An abridged prospectus is any prospectus which contains the information of the company in brief. An abridged prospectus is
a memorandum which contains the salient features of the prospectus. Every company when issuing application for the
purchase of the securities needs to issue abridged prospectus along with such application. However, an abridged prospectus
is not required if the securities are not offered to the public or in case of underwriting agreement.
1. Obligations of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009:

These regulations inter-alia deal with appointment of Lead Merchant Banker, Bankers to the issue, Registrar to

the issue, filing of various documents along with a draft prospectus, pricing of the securities, promoters

contribution, minimum public offer, and disclosure in the offer document.

The company is required to file a draft offer document through the lead merchant banker to the SEBI, at least 30

days prior to registering the prospectus with the Registrar of Companies.

2. It must be dated:

Every prospectus must be dated. The date given in the prospectus shall be taken to be the date of its publication

unless proved to the contrary. (Sec. 55) Date of filing of the prospectus with the Registrar is taken to be the date

of its issue. Date of issue of the prospectus may, however, be different from the date of its publication.

3. It must be registered:

A copy of every prospectus must be signed by every director or proposed director and filed with the Registrar for

registration before it is issued to the public. Subsequent issues of copies of the prospectus must state on their

face that a copy has been so filed. The copy sent for registration must be accompanied with the following

documents:

(a) If the report of an expert is to be published, his written consent to such publication;

(b) Written consent of all those persons whose names are mentioned in the prospectus as auditors, legal

advisors, solicitors, bankers, etc.

(c) A copy of every contract relating to appointment and remuneration of managerial personnel and their consent

to act as such;

(d) A copy of every material contract unless entered into in the ordinary course of business or two years before

the date of the issue of the prospectus;

(e) Where the persons making any report required by Part II of Schedule II have made any adjustments as

regards the “figures of profits or losses or assets and liabilities dealt with by the report”, without giving the

reasons, a written statement signed by those persons setting out the adjustments and giving the reasons

therefore.

The prospectus must be issued within 90 days after the date on which a copy thereof has been delivered for

registration. If a prospectus is issued subsequently after the expiry of this period, it shall be deemed to be a

prospectus a copy of which has not been delivered to the Registrar for registration.
This default will make the company, and every person who is knowingly a party to such an issue of prospectus

liable, to a fine which may extend up to Rs. 50,000 (Sec. 60)

4. Expert to be unconnected with the formation or management of the company:

A prospectus must not include a statement purporting to be made by an expert such as an engineer, valuer,

accountant, etc., unless the expert is a person who has never been engaged or interested in the formation or

promotion or in the management of the company. (Sec. 57)

5. Expert’s consent to be obtained:

If the prospectus includes a statement purporting to be made by an expert, it must not be issued, unless the

expert was an independent person competent to make such reports and had given his written consent to the

issue thereof and has not withdrawn such consent before the delivery of a copy of the prospectus for registration

and a statement to that effect appears in the prospectus. (Sec. 58)

6. Terms of the contract not to be varied:

The terms of any contract stated in the prospectus or statement in lieu of prospectus cannot be varied after

registration of the prospectus except with the approval of the members in general meeting. (Sec. 61)

7. Every application form to be accompanied with a copy of prospectus or abridged prospectus:

Every form of application for subscribing the shares or debentures of a company shall not be issued unless it is

accompanied by a prospectus or an abridged prospectus, unless the offer or invitation has not been made to the

public.

8. Consequences of applying for shares in fictitious names to be prominently displayed:

According to section 58A (2), the following provisions of section 68A (1) must be prominently reproduced in every

prospectus and every application form issued by the company to any person:

“Any person who —

(a) Makes in a fictitious name an application to a company for acquiring, or subscribing for, any shares therein, or

(b) Otherwise induces a company to allot, register any transfer of shares therein to him, or any other person in a

fictitious name.

Shall be punishable with imprisonment for a term which may extend to five years.”

9. Disclosure Requirement and Contents as per Schedule II:

Every prospectus issued by a company must state the matters specified in Part I of the Second Schedule to the

Act and contain reports specified in Part II of the Schedule, and that the said Parts I and II shall have effect

subject to the provisions contained in Part III of the Schedule. (See Annexure 6.1 for the contents of Prospectus)
Besides the requirement of Schedule II, companies are required to comply with the disclosure requirements as

given in the SEBI (Issue of Capital and Disclosure Requirements) Regulation, 2009.

Sebi

The Securities and Exchange Board of India (SEBI)– Regulator of the financial markets in India that was established on
12th April 1988.
It was initially established as a non-statutory body, i.e. it had no control over anything but later in 1992, it was declared an
autonomous body with statutory powers. he

This regulatory authority plays an important role in regulating the securities market of India. Thereby it is important to know
the purpose and objective of the same.

Role of SEBI:
This regulatory authority acts as a watchdog for all the capital market participants and its main purpose is to provide such an
environment for the financial market enthusiasts that facilitate the efficient and smooth working of the securities
market. SEBI also plays an important role in the economy.
To make this happen, it ensures that the three main participants of the financial market are taken care of, i.e. issuers of
securities, investors, and financial intermediaries.

1. Issuers of securities
These are entities in the corporate field that raise funds from various sources in the market. This organization makes sure that
they get a healthy and transparent environment for their needs.

2. Investor
Investors are the ones who keep the markets active. This regulatory authority is responsible for maintaining an environment
that is free from malpractices to restore the confidence of the general public who invest their hard-earned money in the
markets.

3. Financial Intermediaries
These are the people who act as middlemen between the issuers and investors. They make the financial transactions smooth
and safe.

Functions of SEBI:
The main primary three functions are-

1. Protective Function
2. Regulatory Function
3. Development Function
1. Protective Functions
As the name suggests, these functions are performed by SEBI to protect the interest of investors and other financial
participants.

It includes-

 Checking price rigging

 Prevent insider trading
 Promote fair practices
 Create awareness among investors
 Prohibit fraudulent and unfair trade practices
2. Regulatory Functions
These functions are basically performed to keep a check on the functioning of the business in the financial markets.

These functions include-

 Designing guidelines and code of conduct for the proper functioning of financial intermediaries and corporate.
 Regulation of takeover of companies
 Conducting inquiries and audit of exchanges
 Registration of brokers, sub-brokers, merchant bankers etc.
 Levying of fees
 Performing and exercising powers
 Register and regulate credit rating agency
3. Development Functions
This regulatory authority performs certain development functions also that include but they are not limited to-

 Imparting training to intermediaries

 Promotion of fair trading and reduction of malpractices
 Carry out research work
 Encouraging self-regulating organizations
 Buy-sell mutual funds directly from AMC through a broker
Objectives of SEBI:
The objectives of the Stock Exchange Board of India are:

1. Protection to the investors

The primary objective of SEBI is to protect the interest of people in the stock market and provide a healthy environment for
them.

2. Prevention of malpractices
This was the reason why SEBI was formed. Among the main objectives, preventing malpractices is one of them.
3. Fair and proper functioning
SEBI is responsible for the orderly functioning of the capital markets and keeps a close check over the activities of the
financial intermediaries such as brokers, sub-brokers, etc.