INTRODUCTION ON CAPITAL MARKET INSTRUMENTS :
Financial Instruments that are used for raising capital resources in the capital market are known as capital market instruments. The capital market instruments are usually used by the Government, Corporations and Companies. The instruments used by the corporate sector to raise funds are selected on the basis of – (i) investor preference for a given instrument, (ii) the regulatory framework, which regulate the issue of security.
Factors effecting the preferences for choosing any instruments :
For issuers | For investor |
Cost | Return |
Post Tax Cost of Capital | Tax on return received |
Servicing | Yield |
Debt-equity ratio and debt service capabilities | Risk reward ratio |
Ceding the control in case of equity | Gaining the control in case of equity |
Company Law, SEBI Regulations etc | Marketable and liquidity |