The Difference Between the Primary and Secondary Market
Are you new to investing and unsure how to navigate the capital markets? You have come to the right place. TejiMandi carries the legacy of Motilal Oswal Financial Services, as a direct subsidiary of the behemoth. As SEBI-registered portfolio managers, our teams of in-house experts have solutions to all your investing queries and are adept at provisioning tailored portfolio management services to you. The capital market is a platform where buyers and sellers trade various financial instruments such as bonds, stocks, and other securities. It is a medium for transferring capital from investors to companies that need the money to finance business ventures and investments. The term ‘capital market’ includes in-person and digital trading spaces with further classification into primary and secondary markets. Here’s an in-depth look into the primary market v/s secondary market differences and their meaning. However, it is pertinent to understand the types of securities that investors encounter in capital markets before discussing primary and secondary markets. Let us have a look at that first.
Types of securities in capital markets Capital markets primarily deal with equities and debt securities. Both equity and debt securities are forms of investments with different risks and returns for the investor. Here’s a more detailed explanation of the two: Equity Securities: An equity security is traded on the stock market and represents the ownership interest of shareholders in a company or business venture. Equity securities translate to shares of capital stock, including shares of common and preferred stocks. Holding equity shares of a company means owning a portion of that company, and the shareholder is entitled to the company’s future earnings. Although equity shareholders may profit from capital gains when they sell the securities, they may not receive regular payments. However, equity shareholders get some degree of control over the company via voting rights. Moreover, they get a share of the residual interest incase of bankruptcy. Know more about investing in equities in our article on Equity Investments: Benefits, Considerations, And Must-Know Tips on the Teji Mandi blog. Debt Securities: Unlike equity securities, debt securities entitle the lender to receive a stream of interest payments and other contractual rights, except voting rights, while requiring the borrower to repay the principal amount borrowed too. These are IOUs in the form of bonds and notes and represent the borrowed money that must be paid back with interest. Debt securities typically have specific terms stipulating the loan size, interest rate, debt maturity, and the renewal date. Some examples of debt securities include fixed deposits, certificates of deposits, government and corporate bonds, and collateralised securities. Read More About Difference Between the Primary and Secondary Market.