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Classroom — Securities Laws- Basics — Capital Market — Equity Capital Market

Equity Capital Market

Equity capital market is an important part of the capital market itself. In this market, the companies and the financial institutions raise fund for their respective companies or institutions. These funds are raised by using the shares of the company. The company or the institutions provide the equities in the market. The investors invest in the company by purchasing the shares or equities.

The company stocks are the prime financial instrument of the equity capital market. This instrument is provided and maintained by the companies or the financial institutions itself. The reputation of the stocks in the equity capital market is largely dependent on the companies itself because the reputation is maintained by different types of financial data provided by the companies.

The provided data helps the investor to understand the present position and the future of the company in the equity capital market. When the investor is satisfied, he or she makes the investment in the company and the money grows with the growth of the company. In certain situations, the result may be hostile for the investor. The companies also provide regular dividend to these investors.

The participants of the equity capital market ranges from huge companies to small individual investor. In the past, wealthy individuals dominated the equity capital market but the trends are different now. Today, the institutional investors are playing the dominant role. The introduction of the institutional investors have improved the market.

Apart from different types of company stocks, the equity capital market also provides some other financial instruments also which are known as derivatives. There are futures, swaps and options which are among these derivatives. The value of these instruments derive from the equities itself.

The equity capital market and the debt capital market jointly forms the capital market but both of these are not same. The main difference is the amount of risk and return that bis related with these markets. The equity capital market is known for its huge returns and also for its high risks. On the other hand, the debt capital market is far more secured than the equity market but the returns are low.