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Financially Yours (FY), Indian Institute of Management Kozhikode

Finance is the art of passing

money from one hand to the other
until it disappears

CAPITAL MARKETS (PRIMARY)

SUPPLY SIDE

FINANCIAL
INTERMEDIARY:
Banks/ FIs/ Mutual
Funds

DEMAND SIDE

CAPITAL MARKETS (PRIMARY)

House Holds

Companies

Supply
Demand
Financial
Financial
Assets
Liabilities
Side
Side
Government
Financial
Intermediaries
Financial
Intermediari
Liabilities
es

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Financially Yours (FY), Indian Institute of Management Kozhikode

 Denomination
Maturity
Default-risk
Liquidity
Information

 Government
Banks
Financial Institutions

(FIs)NABARD, EXIM Bank, SIDBI, NHB

Households
Firms (incl. Sole Traders,
Partnerships and Corporates)
Mutual Funds
Exchanges
7

 Hedge Funds
Investment Banks
Venture Capitalists
Private Equity Funds
Insurance Companies
Pension Funds
FIIs
Overseas Corporate Bodies

(OCBs)
8

Mutual Funds are financial intermediaries that

collect funds from individual investors and
invest those funds in a potentially wide range
of securities/ assets

Key concept Pooling of money Provide a

mech for small investors to team up

Advantages
Diversification
Professional Management
Lower Transaction costs

Net Asset Value

9

Open and Close Ended Funds based on

structure of scheme

Growth, Income, Balanced, Money Market

schemes based on investment objective

Other special schemes Tax saving, Index

funds, growth and value funds etc.

Charges levied

For more on Mutual

www.amfiindia.com

02/05/1

funds

Financially Yours (FY), Indian Institute of Management Kozhikode

go

to
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Hedge funds allow private investors to

pool assets to be invested by a fund
manager
They are however not registered with
SEC and not regulated
Also take on debt
Attempt
to
exploit
temporary
misalignment in prices
Make a bet on relative valuation on
securities and hence are called Hedge
Funds

11

Hedge funds are similar to private equity funds,

such as venture capital funds, in many respects.
Lightly regulated, private pools of capital
Compensate their managers with a share of the fund's

profits

But

Most hedge funds invest in very liquid assets, and

permit investors to enter or leave the fund easily

Private equity funds invest primarily in very illiquid
assets such as early-stage companies and so investors
are "locked in" for the entire term of the fund.

12

Private firms looking to invest in

Nascent companies with high growth potential
Existing companies with expansion plans but

no access to capital markets

Typically entails high risk for the

investor,but has the potential for aboveaverage returns.
Venture
capital
can
also
include
managerial and technical expertise

13

 Foreign

institutions registered with

the regulator (SEBI in India) and
permitted to participate in financial
markets
Mutual Funds, Pension Funds,
Investment Banks are some of the
FIIs
Can also issue Participatory notes to
others who invest through them
14

Bodies predominantly owned by individuals of

Indian nationality or origin resident outside
India
Include
Overseas companies, partnership firms, societies and

other corporate bodies which are owned, directly or

indirectly, to the extent of atleast 60% by individuals
of Indian nationality or origin resident outside India
Overseas trusts in which atleast 60% of the
beneficial interest is irrevocable held by such
persons

Facilities granted to NRIs are also available

with certain exceptions to OCBs

15

Particulars

Mutual
Fund

Hedge
Fund

Private
Equity
(incl.
venture
capital)

Regulated

Highly

Very
Lightly

Lightly

Take on Debt

No

Yes

Yes

Risk Taking

Least

Highest

High

Limited
Partnershi
ps

Limited
Partnerships

Legal Structure Trusts

16

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Financially Yours (FY), Indian Institute of Management Kozhikode

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Financially Yours (FY), Indian Institute of Management Kozhikode

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By type of issue
Primary
Secondary

Time Horizon/ Maturity

Money
Capital

By type of underlying security

Equity
Debt/ Credit
Forex
Commodities
19

 The

market in which new securities

are issued to investors for the first
time
New securities are created

21

 The

market where buyers and sellers

trade in securities already issued
Securities are transferred

22

 Money

Market consists of debt

securities issued with an original
maturity of less than a year
The instruments are usually highly
marketable
Examples are T-bills, Call Money
market,
CDs,
CPs,
Repos,
Eurodollars, LIBOR Market

24

 Capital

Markets are markets where

securities with original maturity of
more than one year are issued and
traded
Examples
are
equity
shares,
government bonds, debentures, etc

25

 Equity

shares
Preference Shares
Warrants

27

 Term loans from banks

Time deposits
G-secs
Corporate bonds/ debentures
Securitized instruments

28

 Market with largest daily turnover

Over-the-counter (OTC) market
Largely an inter-bank market

29

 Huge market worldwide

Major exchanges are
LME (Metals)
CME (agri-commodities)

30

 Derivatives

are instruments whose

value depends on the value of an
underlying asset

31

CAPITAL MARKETS (PRIMARY)

SUPPLY SIDE

FINANCIAL
INTERMEDIARY:
Banks/ FIs/ Mutual
Funds

DEMAND SIDE

CAPITAL MARKETS (PRIMARY)

32

 Free-float

Market Capitalization
Base period of SENSEX is 1978-79 and
the base value is 100 index points
Index Divisor
Dollex 30 (Dollar linked version)
Base Market Capitalization Adjustment
Source : http://www.bseindia.com/about/abindices/bse30.asp

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Financially Yours (FY), Indian Institute of Management Kozhikode

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 Listed History
Trading Frequency
Final Rank
Market Cap Weightage
Industry / Sector Representation
Track Record

Source : http://www.bseindia.com/about/abindices/bse30.asp

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Financially Yours (FY), Indian Institute of Management Kozhikode

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