STUDY ON CAPITAL MARKET

A PROJECT SUBMITTED TO UNIVERSITY OF MUMBAI

FOR PARTIAL COMPLETION OF THE DEGREE

BACHELOR IN COMMERCE (ACCOUNTING AND

FINANCE)

UNDER FACULTY OF COMMERCE

PREPARED BY
SIDDHI SUNIL DAROLE

UNDER GUIDANCE OF
MR. SHOAIB SHAIKH

NKES. COLLEGE OF ARTS, COMMERCE AND SCIENCE INDULAL D

BHUVA MARG, WADALA (WEST), MUMBAI 400031

AY: 2023-24
 STUDY ON CAPITAL MARKET

A PROJECT SUBMITTED TO UNIVERSITY OF MUMBAI

FOR PARTIAL COMPLETION OF THE DEGREE

BACHELOR IN COMMERCE (ACCOUNTING AND

FINANCE)

UNDER FACULTY OF COMMERCE

PREPARED BY
SIDDHI SUNIL DAROLE

UNDER GUIDANCE OF
MR. SHOAIB SHAIKH

NKES. COLLEGE OF ARTS, COMMERCE AND SCIENCE INDULAL D

BHUVA MARG, WADALA (WEST), MUMBAI 400031

AY: 2023-24
 CERTIFICATE

This is to certify that MS. SIDDHI SUNIL DAROLE has worked and duly completed
his Project Work for the degree of Bachelor in Accounting and Finance (BAF) under
the faculty of Commerce in the Subject of Indirect Tax and his project is entitled,
“STUDY ON CAPITAL MARKET” under my supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of any
University.

It is his own work and facts reported by his personal findings and investigations.

Project Guide / Internal Examiner

MR. SHOAIB SHAIKH External
Examiner Prof.

Dr. Mrs. Veena Prasad

Principal

Date:

Seal of the College

 DECLARATION BY LEARNER

I, the undersigned Ms.Siddhi Sunil Darole declare that the work

embodied in this project work hereby, titled “STUDY ON CAPITAL
MARKET”, forms my own contribution to the research work carried
out under the guidance of Prof. Mr. SOHAIB SHAIK is a result of
my own research work and has not been previously submitted to any
other University for any other Degree/ Diploma to this or any other
University.
I, here by further declare that all information of this document has
been obtained and presented in accordance with academic rules and
ethical conduct.

Name of the learner: Siddhi Sunil Darole

Signature:

Certified By

Name of the guiding teacher: Mr. SHOAIB SHAIKH

Signature:
 ACKNOWLEDGEMENT

Apart from the efforts of me, the success of my project depends largely on the
encouragement and guidelines of many others. I take this opportunity to express
my gratitude to the people who have been instrumental in the successful
completion of this project. Also I would like to thank Coordinator Mr.
SHOAIB SHAIKH and MUMBAI UNIVERSITY for giving me chance to do
this project.

I would like to show my greatest appreciation to Mr. SHOAIB SHAIKH. I say

thank you enough for this tremendous support and help. Without his
encouragement and guidance this project would no have materialized.

The special thanks to all the professors of NKES. COLLEGE OF ARTS,

COMMERCE AND SCIENCE , INDULAL D BHUVA MARG, WADALA
(WEST) , MUMBAI 400031 for their kind cooperation to the completion of
my project work. The guidance and support received from all the professors of
NKES who contributed towards this project is vital for the success of the
project. I am grateful for these constant support and help. Last but not least I
wish to avail myself of this to thank my parents for their manual support,
strength and help for everything.

Name of the Student:Signature:

 INDEX
SR NO. CONTENT PAGE
NO.
1. CHAPTER 1
 INTRODUCTION
 DEFINITION
 OBJECTIVE
 HISTORY OF CAPITAL MARKET
 REFORM/DEVELOPMENT IN CAPITAL

2. CHAPTER 2
 MAJOR FEATURES OF INDIAN CAPITAL
MARKET

3. CHAPTER 3
 TYPE OF CAPITAL MARKET
1. PRIMARY MARKET
ACTIVITIES, ROLE, FUNCTIONS, TYPE
2. SECONDARY MARKET
ACTIVITIES, IMPORTANCE, ROLE,
FUNCTIONS, TYPE
LISTED INSTRUMENT IN SECONDARY
MARKET

4. CHAPTER 4
 PRESENT FACE OF INDIAN CAPITAL MARKET
 PARTICIPANT IN CAPITAL MARKET
5. CHAPTER 5
 INTRODUCTION OF SEBI
 ROLE OF SEBI IN CAPITAL MARKET
 OBJECTIVE OF SEBI
6. CHAPTER 6
 INSTRUMENT OF CAPITAL MARKET
7. CHAPTER 7
 RESEARCH & METHODOLOGY
 OBJECTIVE OF RESEARCH
 DATA ANALYSIS

8. ANNEXURE
9. CONCLUSION
10. SUGGESTION
11. BIBLIOGRAPHY
Chapter: - 1

INTRODUCTION:

A very important area of the financial services industry is the capital markets.
The capital markets are fundamental to the economy of the country. It promotes
economic growth
by providing
corporations and
governments
access to capital
which enables
these organizations
to invest in businesses, create jobs, and build infrastructure.

The capital market in India is a market for securities, where companies and
governments can raise long term funds. It is a market designed for the selling
and buying of stocks and bonds. Stocks and bonds are the two major ways to
generate capital and long term funds. Thus, the bond markets and stock markets
are considered as capital markets. The Indian securities market consists of
primary (new securities) market and secondary (stock) market in both
equity and debt and both the market is controlled by SEBI( SECURITIES
AND EXCHANGE BORAD OF INDAI ) The primary market provides
channel for sale of new securities while the secondary market deals in trading of
previously issued securities. The issuers of securities issue new securities in the
primary market to raise funds for investment. They do either through the public
issue or private placement. There are mainly two types of issuer who issue
securities. The
corporate entities mainly issue equity and debt instruments (Shares and
debentures) while the Government (Central/State) issue debt securities.

The secondary market enables participants who hold securities to adjust their
holding (Portfolio) in response to changes of their assessment of risk & return.
.

Generally, the personal savings of an entrepreneur along with contributions

from friends and relatives are the source of fund to start new or to expand
existing business. This may not be feasible in case of large projects as the
required contribution from the entrepreneur (promoter) would be very large
even after availing term loan; the promoter may not be able to bring his / her
share (equity capital). Thus availability of capital can be a major constraint in
setting up or expanding business on a large scale. However, instead of
depending upon a limited pool of savings of a small circle of friends and
relatives, the promoter has the option of raising money from the public across
the country by selling (issuing) shares of the company. For this purpose, the
promoter can invite investment to his or her venture by issuing offer document
which gives full details about track record, the company, the nature of the
project, the business model, the expected profitability etc. If you are
comfortable with this proposed venture, you may invest and thus become a
shareholder of the company. Through aggregation, even small amounts
available with a very large number of individuals translate into usable capital
for corporates. Your small savings of, say, even ` 5,000 can contribute in setting
up, say, a ` 5,000 crore Cement or Steel plant. This mechanism by which
corporates raise money from public is called the primary markets.

Importantly, when you, as a shareholder, need your money back, you can sell
these shares to other or new investors. Such trades do not reduce or alter the
company’s capital. Stock exchanges bring such sellers and buyers together and
facilitate trading. Therefore, companies raising money from public are required
to list their shares on the stock exchange. This mechanism of buying and selling
shares through stock exchange is known as the secondary markets.

Definition:

Capital markets are financial markets for the buying and selling of long-term
debt or equity-backed securities. These markets channel the wealth of savers to
those who can put it to long-term productive use,
such as companies or governments making
long-term investments.

Capital markets help channelise surplus funds

from savers to institutions which then invest
them into productive use. Generally, this
market trades mostly in long-term securities.

OBJECTIVES:

» To mobilize resources for investments.

» To facilitate buying and selling platform.

» To insure the transaction between buyer and seller done in appropriate

manner.

» To make awareness about loss and profit in capital market.

» Fair price
History of Indian Capital Market

Indian Stock Markets are one of the oldest in Asia. Its history dates back to
nearly 200 years ago. The earliest records of security dealings in India are
meager and obscure. The East India Company was the dominant institution in
those days and business in its loan securities used to be transacted towards the
close of the eighteenth century. The history of the Indian capital markets and the
stock market, in particular can be traced back to 1861 when the American Civil
War began. The opening of the Suez Canal during the 1860s led to a
tremendous increase in Exports to the United Kingdom and United States,
Several companies were formed during this period and many banks came to the
fore to handle the finances relating to these trades. With many of these
registered under the British Companies Act, the Stock Exchange, Mumbai,
came into existence in 1875. It was an unincorporated body of stockbrokers,
which started doing business in the city under a banyan tree. Business was
essentially confined to company owners and brokers, with very little interest
evinced by the general public. There had been much fluctuation in the stock
market on account of the American war and the battles in Europe. sir
Premchand Roychand remained a kingpin for many years.
Reform / development in capital market since 1991

1. SEBI (Securities and exchange board of India): SEBI become

operational since 1992. It was set with necessary powers to regulate the
activities connected with marketing of securities and investment in the
stock exchanges, merchant banking, portfolio management, stock brokers
and others in India. The objective of SEBI is to protect the interest of
investors in primary and secondary stock market in the country.

2. National Stock Exchange (NSE): The setting up to NSE is a landmark

in Indian capital markets. At present, NSE is the largest stock market in
the country. Trading on NSE can be done throughout the country
through the network of satellite terminals. NSE has introduced inter-
regional clearing facilities.

3. Dematerialisation of Shares: Demat of shares has been introduced in all

the shares traded on the secondary stock markets as well as those issued
to the public in the primary markets. Even bonds and debentures are
allowed in demat form. The advantage of demat trade is that it involves
Paperless trading.

4. Screen Based Trading: The Indian stock exchanges were modernised

in 90s, with Computerised Screen Based Trading System (CSBTS). It
cuts down time, cost, risk of error and fraud and there by leads to
improved operational efficiency. The trading system also provides
complete online market information through various inquiry facilities.

5. Investor Protection: The Central Government notified the

establishment of Investor Education and Protection Fund (IEPF) with
effect from 1st Oct. 2001: The IEPF shall be credited with amounts in
unpaid dividend accounts of companies, application moneys received by
companies for
 allotment of any securities and due for refund, matured deposits and
debentures with companies and interest accrued there on, if they have
remained unclaimed and unpaid for a period of seven years from the due
date of payment. The IEPF will be utilised for promotion of awareness
amongst investors and protection of their interest.

6. Rolling Settlement: Rolling settlement is an important measure to

enhance the efficiency and integrity of the securities market. Under
rolling settlement all trades executed on a trading day (T) are settled
after certain days (N). This is called T + N rolling settlement. Since
April 1, 2002 trades are settled' under T + 3 rolling settlement. In April
2003, the trading cycle has been reduced to T + 2 days. The shortening
of trading cycle has reduced undue speculation on stock markets.

7. The Clearing Corporation of India Limited (CCIL): The CCIL was

registered in 2001, under the Companies Act, 1956 with the State Bank of
India as the Chief Promoter. The CCIL clears all transactions in
government securities and repos and also Rupee / US $ forex spot and
forward deals All trades in government securities below 20 crores would
be mandatorily settled through CCIL, white those above 20 crores would
have the option for settlement through the RBI or CCIL.

8. The National Securities Clearing Corporation Limited (NSCL): The

NSCL was set up in 1996. It has started guaranteeing all trades in NSE
since July 1996. The NSCL is responsible for post-trade activities of
NSE. It has put in place a comprehensive risk management system,
which is constantly monitored and upgraded to pre-expect market
failures.

9. Trading in Central Government Securities: In order to encourage

wider participation of all classes of investors, including retail investors,
across the country, trading in government securities has been
introduced
 from January 2003. Trading in government securities can be carried out
through a nation wide, anonymous, order-driver, screen-based trading
system of stock exchanges in the same way in which trading takes place
in equities.

10. Accessing Global Funds Market: Indian companies are allowed to

access global finance market and benefit from the lower cost of funds.
They have been permitted to raise resources through issue of American
Depository Receipts (ADRs), Global Depository Receipts (GDRs),
Foreign Currency Convertible Bonds (FCCBS) and External
Commercial Borrowings (ECBs). Further Indian financial system is
opened up for investments of foreign funds through Non-Resident
Indians (NRIs), Foreign Institutional investors (FIls), and Overseas
Corporate Bodies (OCBS).

11. Mutual Funds: Mutual Funds are an important avenue through

which households participate in the securities market. As an
investment intermediary, mutual funds offer a variety of services /
advantages to small investors. SEBI has the authority to lay down
guidelines and supervise and regulate the working of mutual funds.

12. Internet Trading: Trading on stock exchanges is allowed through

internet, investors can place orders with registered stock brokers
through internet. This enables the stock brokers to execute the orders at
a greater pace.

13. Buy Back of Shares: Since 1999, companies are allowed to buy back
of shares. Through buy back, promoters reduce the floating equity stock
in market. Buy back of shares help companies to overcome the problem
of hostile takeover by rival firms and others.
14. Derivatives Trading: Derivatives trading in equities started in June
2000. At present, there are four equity derivative products in India Stock
Futures, Stock Options, Index Futures, Index Options. Derivative trading
is permitted on two stock exchanges in India i.e. NSE and BSE. At
present in India, derivatives market turnover is more than cash market.

15. PAN Made Mandatory: In order to strengthen the "Know your client"
norms and to have sound audit trail of transactions in securities market,
Permanent Account Number(PAN) has been made mandatory with effect
from January 1, 2007.
Chapter: - 2

Major features of Indian Capital Market

 Deals in Long Term Investment

Capital market is a market for trading of long term securities. It provides long
term investment avenues to the investors. Borrowers can raise fund for a long
period from the capital market. Here borrowing and lending is for a period
which is more than one year. Long term financial instruments like shares,
bonds, and debentures are traded in the capital market.

 Bring Together Borrowers and Lender

It acts as mediators between the borrowers and lenders of money. It links the
person having surplus funds with the one who is the deficit of money. Capital
market directs people having savings to different productive investment
avenues. This help in providing long term funds to borrowers by attracting large
investments from peoples.

 Regulated by Government

Capital market works as per the regulation of government. There is a body

named SEBI set up by the government who looks and regulate the functioning
of the capital market. SEBI (Securities Exchange Board of India) controls and
monitors the functioning of capital markets to protect the interest of its
investors. It aims at avoiding any speculative and malpractices in the capital
market.
 Utilises Intermediaries

There are several intermediaries who are connected with the capital market to
facilitate its functioning. Intermediaries are termed as important work organs of
capital market. Different intermediaries involved with capital market are
Broker,
sub-brokers, underwriters, collection bankers etc. These intermediaries interact
with customers and communicate all important information between the capital
market and customers.

 Determines Capital Formation Rate

Capital market reflect the rate of capital growth in the economy. Capital market
circulates the funds among different sectors of the economy. It provides the
huge fund required for large infrastructural developments in the economy by
attracting investments from the public. Different business corporations depend
on capital markets for raising funds for their processes. This way it accelerates
the rate of capital formation in the economy.

 Provides Liquidity

Capital market is a highly liquid market as the instruments traded in the capital
market are easily convertible into cash. Investors can whenever they require can
converts their investments into cash by selling their instruments over the
market. It provides an all-time market for the peoples looking for investments
and one looking for borrowing money.

 Variety of Instruments

There are varieties of instruments which are traded in the Capital market. There
is a lot of options available for both investors and borrowers hence providing
greater flexibility to both. A person according to his risk-taking ability and
convenience can take any of the avenues available for investment and
borrowing. High leveraged company can go for equity option for raising funds.
Whereas low leveraged company can go for debenture and bond option.
CHAPTER: - 3

Type of capital market

1. Primary market

Companies issue securities from time to time to raise funds in order to meet
their financial requirements for modernization, expansions and
diversification
programs. These securities
are issued directly to the
investors (both individuals
as well as institutional)
through the mechanism
called primary market or
new issue market. The
primary market
refers to the set-up, which helps the industry to raise the funds by issuing
different types of securities. This set-up consists of the type of securities
available, financial institutions and the regulatory framework. The primary
market discharges the important function of transfer of savings especially of the
individuals to the companies, the mutual funds, and the public sector
undertakings. Individuals or other investors with surplus money invest their
savings in exchange for shares, debentures and other securities. In the primary
market the new issue of securities are presented in the form of public issues,
right issues or private placement.

The securities that are often resorted for raising funds are equity shares,
preference shares, bonds, debentures, warrants, cumulative convertible
preference shares, zero interest convertible debentures, etc. Public issues of
securities may be made through:
» Prospectus

» Offer for sale

» Book building process

» Private placement

The investors directly subscribe the securities offered to public through a

prospectus. The company through different media generally makes wide
publicity about the public offer.

Activities in the Primary Market

1. Appointment of merchant bankers

2. Collection of money
3. Pricing of securities being issued
4. Listing on the stock exchange
5. Information on credit risk
6. Making public issues
7. Record keeping

Function of Primary Market

New issue Offer: The primary market organise offer of a new issue which had
not been traded on any other exchanger earlier. Due to this reason, it called a
new issue market. organising new issue offers involves a detailed assessment of
project viability, among other factors. The financial arrangement for the purpose
include consideration promotes equity, liquidity ratio, debt-equity ratio and
requirement of foreign exchange.
Underwriting service: Underwriting is a kind of guarantee undertaken by an
institution or firm of brokers ensuring the marketability of an issue. it is a
method whereby the guarantor makes a
promise to the stock issuing
company that he would purchase a
certain specific number of shares in
the event of their not being invested
by the public.

Organization: Deals with the

origin of the new issue. The
proposal is analyzed in terms of the
nature of the security, the size of
the issued
timings of the issue and flotation method of the issue.

Distribution: The third function is that of distribution of shares. Distribution

means the function of sale of shares and debentures to the investors. This is
performed by brokers and agents. They maintain regular lists of clients and
directly contact them for purchase and sale of securities.

Role of primary market

» Capital formation - It provides attractive issue to the potential investors and

with this company can raise capital at lower costs.

» Liquidity - As the securities issued in primary market can be immediately

sold in secondary market the rate of liquidity is higher.
» Diversification - Many financial intermediaries invest in primary market
therefore there is less risk if there is failure in investment as the company does
not depend on a single investor. The diversification of investment reduces the
overall risk.

Types of issues

 Public issue (PE): The public issue is one of

the most common methods of issuing securities
to the public. The company enters the capital
market to raise money from kinds of investors.
Here, the securities are offered for sale to new
investors. The new investor becomes the
shareholder of the issuing company. This is called a public issue.

 Initial public offer(IPO): When an unlisted company makes either a fresh

issue of securities or an offer for sale of its
existing securities or both, for the first time to
the public, the issue is called as an Initial Public
Offer.

 Follow on public offer(FPO): When an already listed company makes

either a fresh issue of securities to the public or
an offer for sale of existing shares to the
public, through an offer document. The listed
company does this to raise additional funds. it
is referred to as Follow on public Offer.
 Private placement: Private placements mean that when a company
offers its securities to a small group of people. The securities may be
bonds, stocks, or other securities. The investors can be either individual
or institution or both.

Comparatively, private placements are more manageable to issue than an

IPO. The regulatory norms are significantly less. Also, it reduces cost and
time. The private placement is suitable for companies that are at early
stages (like startups). The company may raise capital through an
investment bank or a hedge fund or ultra-high net worth individuals
(HNIs).

 Preferential issue: The preferential issue is one of the quickest methods

for a company to raise capital for
their business. Here, both listed
and unlisted companies can
issue shares. Usually, these
companies issue shares to a
particular group of investors.

It is important to note that the preferential issue is neither a public issue

nor a rights issue. In the preferential allotment, the preference
shareholders receive dividends before the ordinary shareholders receive
it.

 Rights Issue: When a listed company proposes to issue fresh securities to

its existing shareholders, as on a record date, it is called as a rights issue.
The rights are normally offered in a particular ratio to the number of
securities held prior to the issue. This route is best suited for companies
who would like to raise capital without diluting stake of its existing
shareholders.
2. Secondary market

A secondary market is a
marketplace where investors buy
stocks, bonds, and other
securities already traded earlier.
For the original issuing company,
it is the market it can monitor and
control the transactions, helping
the management make well-informed decisions.
As soon as a stock or any security reaches the marketplace after its first-time
purchase or sale, it is said to have entered the aftermarket. Such markets have
high liquidity, and investors can buy or sell stocks easily for cash. The trades
occurring in the aftermarket indicate how well a nation’s economic condition is.
If the stock prices are up, it shows a booming economy. On the contrary, if the
prices go down, it marks a deteriorating economy.
A non-primary market offers big and small investors an equal chance, helping
them trade in their desired stocks. It marks economic efficiency as sellers and
buyers value the security traded more than its prices. Moreover, when an
investor enters the aftermarket, there is always an assurance of having
authorized securities available for trade.
A secondary market is also known as an aftermarket. It is a place where
companies can trade their securities. Secondary markets allow investors to buy
and sell shares freely without the issuing company’s intervention. Share
valuation is based on performance in these transactions. Consequently, the
selling of shares between buyers and sellers of stock generates income.
A secondary market is a bustling place for trading securities of many kinds.
Investors buy and sell shares, bonds, debentures, commercial papers, and
treasury bills in this auction-style or dealer environment. The secondary markets
can be either an auction marketplace like the stock exchange or over-the-counter
(OTC).
In the stock market, traders haggle over prices for their desired goods. While, in
an OTC market trades take place without using the platform of a stock exchange
at all.
Companies first offer their securities in the primary market to those with enough
funds and an investment plan. Thereafter, the listing of securities takes place in
a stock exchange for trading in the markets. National Stock Exchange (NSE)
and Bombay Stock Exchange (BSE) are the stock exchanges in India.

In India, the secondary market, represented by the stock exchanges network, is

more than 100 years old when in 1875, the first stock exchange started
operations in Mumbai. Gradually, stock exchanges at other places have also
been established and at present, there are 23 stock exchanges operating in India.
The secondary market in India got a boost when the Over the Counter Exchange
of India (OTCEI) and the National Stock Exchange (NSE) were established.
Out of the 23 stock exchanges, 20 stock exchanges are operating at Mumbai
(BSE), Kolkata, Chennai, Ahmadabad, Delhi, and Indore. Bangalore,
Hyderabad, Cochin, Kanpur, Pune, Ludhiana, Guwahati, Mangalore, Patna,
Jaipur, Bhubaneswar, Rajkot, Vadodara and Coimbatore. Besides, there is one
ICSE established by 14 Regional Stock Exchanges. It may be noted that out of
23 stock exchanges, only 2, i.e., the NSE and the Over the Counter Exchange of
India (OTCEI) have been established by the All India Financial Institutions
while other stock exchanges are operating as associations or limited companies.
In order to protect and safeguard the interest of the investors, the operations,
functioning and working of the stock exchanges and their members (i.e., share
brokers) are supervised and regulated by the Securities Contracts (Regulations)
Act, 1956 and the SEBI Act, 1992.
Activities in the Secondary Market

1. Trading of securities
2. Risk management
3. Clearing and settlement of trader
4. Delivery of securities and funds

Importance of secondary market

 The secondary market helps measure the economic condition of a

country. The rise or fall in share prices indicates a boom or recession
cycle in an economy.
 The secondary market provides a good mechanism for a fair valuation of
a company.
 The secondary market helps drive the price of securities towards their
genuine, fair market value through the basic economic forces of supply
and demand.
 The secondary market promotes economic efficiency. Each sale of a
security involves a seller who values the security less than the price and a
buyer who values the security more than the price.

 The secondary market allows for high liquidity – stocks can be easily
bought and sold for cash.

Role of secondary market

For the general investor, the secondary market provides an efficient platform for
trading of his securities. For the management of the company, Secondary equity
markets serve as a monitoring and control conduit by facilitating value-
enhancing control activities, enabling implementation of incentive-based
management
contracts, and aggregating information (via price discovery) that guides
management decisions.

Functions of secondary market

 The Economic barometer: The secondary market is a great indicator for

measuring the economic health of an entire country. Therefore, every
major change in the nation influences the prices of shares. Each rise or
fall represents either an uptick or downtick during economic cycles,
respectively. The Secondary Market can be seen as a pulse checker to
measure the economy’s health and well-being.

 Securities pricing: Secondary markets are a great asset to investors, the

government, and creditors alike. Investors can get an idea of how much
they have invested in their securities using secondary market valuation
data. Therefore, it is helpful for tax calculations or other financial tasks
like borrowing money from a bank. The government benefits because it
has more insight into the finances of its citizens. It helps them collect tax
revenue accordingly. Instead of being reactive about collecting pending
tax amounts, the government refers to the data. Creditors assess
valuations which helps them determine the credit-worthiness of a
borrower and avoid risks.
 Transaction safety: Secondary markets are great for trading because
they trade only authorized securities. Stock exchange authorities verify
the company’s value before including them in their trade list. In addition
to being safer than other options, there is also strict oversight by
regulatory agencies. They ensure companies stay compliant with rules
such as those pertaining to financial reporting standards. Therefore, it
gives investors the confidence that they are buying from a trustworthy
source.
  Contribution to economic growth: Secondary markets help to provide a
platform for businesses and investors with excess capital. This process of
selling some securities in order to invest in others enables you to get good
returns. Therefore, you can make the most out of your money by
investing it wisely. The flow of investment capital via disinvestment and
reinvestment helps ensure efficient use of resources while also reducing
economic uncertainty. It leads to growth within individual industries and
even across sectors at large. Thus, it plays a role in improving the
economy as a whole.

 LIQUITIY: The secondary market for securities was created in order to

allow investors to easily sell their holdings and convert them into cash
when they need it. It not only provides the benefit of short-term liquidity
but also medium-term investments because you can quickly turn your
long- term investment back into one that is shorter duration.

TYPE OF SECONDARY MAREKT

 STOCK EXCHANGE
Stock exchanges are where the trading of securities takes place, without any
contact between buyer and seller. The National Stock Exchange (NSE) and The
Bombay Stock Exchange (BSE) are examples of such a platform. A stock
exchange’s stringent regulations in securities trading provide for the safety of
investor transactions. Consequently, the counterparty risk is almost non existent,
with a higher transaction cost applicable to investments through commission
and exchange fees. These guarantee trades that have less intrastate fraud or
manipulation.
  OVER-THE -COUNTER(OTC)
Sometimes you'll hear a dealer market referred to as an over-the-counter (OTC)
market. The term originally meant a relatively unorganized system where
trading did not occur at a physical place, as we described above, but rather
through dealer networks. The term was most likely derived from the off-Wall
Street trading that boomed during the great bull market of the 1920s, in which
shares were sold "over-the-counter" in stock shops. In other words, the stocks
were not listed on a stock exchange - they were "unlisted".
Over-the-counter (OTC) markets are a crucial means of managing risk in the
21st century. Unregulated OTC market participants engage directly with each
other. Consequently, traders have to deal directly with counterparty risks that
fall outside regulatory oversight. Foreign Exchange Market, or FOREX,
provides an excellent example of an increase in trade volume via decentralized
trading. It happens without regulation while simultaneously increasing exposure
to these inherent risks for both parties. This is the main reason for the price
difference between one seller to another.

LISTED INSTRUMENT IN SECONDARY MARKET

1. Fixed Income Instrument: As the name implies, these instruments form

part of investments that guarantee fixed
income in the form of regular
payments. For example, the interest
paid monthly and the principal amount
on maturity fall under this category.
Some of the other examples
include debentures, bonds, etc.
2. Variable Income Instrument: Ever since the first stocks were sold to
investors, they have been a major element of investment portfolios.
Variable income instruments generate an
effective rate of return to their owners and
certain market factors determine this amount.
For example, equity shares allow companies to
raise finance for expansion or other expenses.
At the same time, people get claims over net profits as well as assets if it
goes into liquidation.

Derivatives are contracts between two parties where one party agrees
with another on delivering a return within a set period. These securities
expose investors better rewards than more stable investments like bonds,
though they are riskier.

3. Hybrid instrument: Convertible debentures are hybrid investment

instruments that may be converted to equity shares after a predetermined
period. This type of security is available as either debt or loan securities
and can provide multiple benefits for your portfolio.