1 Define debit market

 The Debt Market is the market where fixed income securities of various types and
features are issued and. traded. Debt Markets are therefore, markets for fixed income
securities issued by Central and State. Governments

There are 2 types of debt markets –

 Money Markets, and

 Long-Term Fixed Income Markets.

Advantage of Debit Market

 Investments in debt securities typically involve less risk than equity investments
 offer a lower potential return on investment.
 Debt investments by nature fluctuate less in price than stocks. Even if a company is
liquidated, bondholders are the first to be paid.

Dis advantage of Debit Market

 Paying Back the Debt. Making payments to a bank or other lender can be stress-free if you have
ample revenue flowing into your business. ...
 High Interest Rates. ...
 The Effect on Your Credit Rating. ...
 Cash Flow Difficulties.
principle role of debt markets
 The principle role of debt markets is to transfer capital from savers to borrowers /
investors, and allocate them in an efficient manner among competing uses in the
economy, thereby contributing to growth both through increased investment and through
enhanced efficiency in resource use.

How do debt markets work?

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  debt is a form of borrowed capital. The central or state governments raise money from the
market by issuing government securities or bonds.
 In effect, the government is borrowing money from you and will pay interest to you at
regular intervals.
 The principal amount is returned on maturity. In the same way, a company raises money
from the market by selling debt market securities such as corporate bonds. 
 The debt market is made up of bonds issued by government authorities and companies.
 Risk and returns: In case of government bonds, the returns are guaranteed. There is a
fixed rate of return promised by the government. Corporate bonds work a similar way but
there are chances of company defaults that may put the bonds at risk. Government bonds
are considered risk free. Hence the returns are also moderate. This is an important
difference between the debt and equity market.
 Research requirement: Research requirement is comparatively lesser in bonds. Especially
when you don’t engage in frequent purchase and sale of bonds like in the case of stocks,
there are lesser factors that govern the interest rate you receive on the money loaned out
by you.
Who can invest in debt markets?
 Following are the factors that can help you to decide if you can invest in debt markets or
not:
 Risk-averse investors
 Investors looking for guaranteed returns
 If you do not want to invest a lot of time researching
 If you want to park your money and leave it there and not worry much about it
 How are the investors prioritized in the debt and equity market?
1 Define equity market
 An equity market is a market in which shares of companies are issued and traded,
either through exchanges or over-the-counter markets. Also known as the stock
market, it is one of the most vital areas of a market economy

The Three Basic Types of Equity

 Common Stock. Common stock represents an ownership in a corporation. ...
 Preferred Shares. Preferred shares are stock in a company that have a defined dividend, and a
prior claim on income to the common stock holder. ...
 Warrants.

Type of equity market

Four components that are included in the shareholders' equity are 

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  outstanding shares,
 additional paid-in capital,
 retained earnings,
 and treasury stock. If shareholders' equity is positive, a company has enough assets to
pay its liabilities; if it's negative, a company's liabilities surpass its assets

Function of equity
 Equity markets are meeting points for issuers and buyers of stocks in a market
economy.
 Equity markets are a method for companies to raise capital and investors to own a piece
of a company.
 Stocks can be issued in public markets or private markets.
 Depending on the type of issue, the venue for trading changes.

Benefit of equity market

 Equity markets play an important role in a market-based economy.
 They provide capital raising, liquidity, and investment options.
 These important functions allow our economy to grow continuously, and
 they are the hallmark of capitalism

How do equity markets work?

 Equity markets trade in shares or stocks of the company listed on the stock exchanges. A stock
in a company indicates a unit in the ownership of the company. As shareholders, you become
part owners of the company. The largest shareholder, with 50% or more shares, becomes the
owner of the company.

Risk and return: Equity markets are riskier than debt markets. Listed shares are traded daily
between the market hours. Their returns are not guaranteed. They either come in the form of
dividends or by selling your investment in the market at a higher mark-up, helping you to book
profits. They are highly volatile and the numbers are governed by factors such as

 demand and supply

 company’s financial health
 sectorial performance
 Quarterly results and more.

Who can invest in equity markets? 

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  Here are quick pointers to understand the characteristics you need to be able to invest in
stock markets:
 Higher risk profile
 More funding to cushion against volatility
 Perseverance to withstand market volatility and to stay invested
 Time to research and study the companies
 Patience for returns to rise and become stable as returns can go very high but are also
volatile.

Difference between Debt and Equity Market 

Debt market and equity market are two broad categories of investment available in the general
investment milieu. They sit at two fag ends of a very large curve. While equity markets consist
of a company’s owned capital, debts are a company’s borrowed capital. The characteristics, risk,
returns, basic structure and motive, everything differs between the two of them. There is no one-
size-fits-all investment product. Let’s delve deeper into the individual concepts and understand
why even after being stark contrasts, they are equally important and inter-relatable at times.

Difference between equity market and debt market

Sr. Equity Debt Market

No. Market

1) Meaning Equities are owned capital. Debt is a form of borrowed capital.

2) Who can Companies registered with Semi Companies, governments

issue

3) Risk High risk Low-risk because government-backed

however corporate bonds are risky

4) Returns Volatile Moderate

5) Investor Shareholders, part owners in the Creditors to the company/government

status company

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 6) Nature of Dividends or profit booking while interest paid by the bond issuer
return trading in the stock market

7) Regulator Semi RBI and Semi in case of corporate bonds

1.4 How can you invest in the two markets?

When it comes to how you can approach these two markets, there is not much difference
between the debt market and the equity market. Both of them can be approached directly or
through mutual funds however there are a few nuances that may be different.

Equity markets:
Here are two ways you can access the equity market:

 Direct investment: You can invest in equities directly by buying the stocks listed on the
stock exchanges individually. This method requires you to do more research on the
individual companies that you want to invest in. You need to figure out which industry
suits your investment profile more and then pick the top-performing companies with a
strong growth trajectory.
 Mutual funds: You can invest in mutual funds which are pooled investment vehicles that
collect money from all the investors and then, in turn, invest in equities. Here you will
not be directly involved in investment decisions. There will be a fund manager who
decided which stock to invest in. You will be paying a fee for the fund manager expertise
along with any other charges that may be levied.

Debt Markets:
Here are two ways you can invest in debt markets:

 Direct investment: You can invest in bonds through private placement directly with the
company in case of corporate bonds. In case of government bonds, RBI, the supervisor of
government bonds organizes auctions for the sale of these bonds. There are two ways in
which you can participate in these auctions:



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  Competitive bidding: Larger investors like mutual fund companies, banks, commercial
firms and more participate via competitive bidding because the process is complicated

Non-competitive bidding: This is an easier process for individual investors like high net worth
individuals (HNI), retail investors and likewise. This can be done through online platforms.
National Stock Exchange (NSE) has an app called NSE go Bid where smaller
investors can invest in government securities directly

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