IM-Module-2

(Capital market- meaning - structure- functions- money market Vs capital market - capital market
instrument - shares- debentures - bonds - stock exchanges - roles - functions - stock exchanges in
India - BSE- NSE- OTCEI- trading mechanism - online trading - types of investors - types of
speculators)
Capital Market- Meaning
A capital market is an organized market in which both individuals and business entities buy
and sell debt and equity securities. It is designed to be an efficient way to enter into purchase
and sale transactions.
This market is a key source of funds for an entity whose securities are permitted by a regulatory
authority to be traded, since it can readily sell its debt obligations and equity to investors.
Governments also use capital markets to raise funds, typically through the issuance of long -
term bonds.
Capital markets are composed of primary and secondary markets. The most common capital
markets are the stock market and the bond market.

Types of Capital Market:

The capital market is mainly categorized into:

Capital markets are a crucial part of a functioning modern economy because they move money from
the people who have it to those who need it for productive use.

These markets are divided into two different categories: primary markets—where new equity stock
and bond issues are sold to investors—and secondary markets, which trade existing securities.

Primary Market

When a company publicly sells new stocks or bonds for the first time—such as in an initial public
offering (IPO)—it does so in the primary capital market. This market is sometimes called the new
issues market.

When investors purchase securities on the primary capital market, the company that offers the
securities hires an underwriting firm to review it and create a prospectus outlining the price and
other details of the securities to be issued.

All issues on the primary market are subject to strict regulation. Companies must file statements
with the Securities and Exchange Commission (SEC) and other securities agencies and must wait
until their filings are approved before they can go public

Secondary Market

The secondary market, on the other hand, includes venues overseen by a regulatory body like the
SEC where these previously issued securities are traded between investors. Issuing companies do
not have a part in the secondary market. The New York Stock Exchange (NYSE) and Nasdaq are
examples of secondary markets.

The secondary market has two different categories: the auction and the dealer markets. The auction
market is home to the open outcry system where buyers and sellers congregate in one location and
announce the prices at which they are willing to buy and sell their securities. The NYSE is one such
example. In dealer markets, though, people trade through electronic networks. Most small investors
trade through dealer markets

Features of Capital Market:

Here are the features of the Capital Market:

1. Serves as a link between Savers and Investment Opportunities:

The capital market serves as a crucial link between the saving and investment process as it transfers
money from savers to entrepreneurial borrowers.

2. Long term Investment:

It helps the investors to invest their hard-earned money in long-term investments.

3. Helps in Capital formation:

The capital market offers opportunities for those investors who have a surplus amount of money and
want to park their money in some type of investment and also take the benefit of the power of
compounding.

4. Helps Intermediaries:
While transferring shares and money from one investor to another, it takes help from intermediaries
like brokers, banks, etc. thus helping them in conducting their business.

5. Rules and Regulations:

The capital markets operate under the regulation and rules of the Government thus making it a safe
place to trade.

Functions of Capital Market

The main functions of the capital market are:
▪ The capital market acts as the link between the investors and savers.
▪ It helps in facilitating the movement of capital to more productive areas to boost the national
income.
▪ It boosts economic growth.
▪ It helps in the mobilization of savings for financing long term investment.
▪ It facilitates the trading of securities.
▪ It reduces transaction and information cost.
▪ It helps in quick valuations of financial instruments.
▪ Through derivative trading, it offers hedging against market risks.
▪ It helps in facilitating transaction settlement.
▪ It improves the effectiveness of capital allocation.
▪ It provides continuous availability of funds to the companies and government.

Structure of Capital Market

The capital market in India consists of the following structure:
Capital Market Instruments

1. Equities:
Equity securities refer to the part of ownership that is held by shareholders in a company.

In simple words, it refers to an investment in the company’s equity stock for becoming a shareholder
of the organization.
The main difference between equity holders and debt holders is that the former does not get regular
payment, but they can profit from capital gains by selling the stocks.

Also, the equity holders get ownership rights and they become one of the owners of the company.

When the company faces bankruptcy, then the equity holders can only share the residual interest that
remains after debt holders have been paid.

Companies also regularly give dividends to their shareholders as a part of earned profits coming
from their core business operations.

2. Debt Securities:
Debt Securities can be classified into bonds and debentures:
1. Bonds:
Bonds are fixed-income instruments that are primarily issued by the centre and state governments,
municipalities, and even companies for financing infrastructural development or other types of
projects.

It can be referred to as a loaning capital market instrument, where the issuer of the bond is known as
the borrower.
 Bonds generally carry a fixed lock-in period. Thus, the bond issuers have to repay the principal
amount on the maturity date to the bondholders.
2. Debentures:
Debentures are unsecured investment options unlike bonds and they are not backed by any collateral.

The lending is based on mutual trust and, herein, investors act as potential creditors of an issuing
institution or company.

3. Derivatives:
Derivative instruments are capital market financial instruments whose values are determined from
the underlying assets, such as currency, bonds, stocks, and stock indexes.

The four most common types of derivative instruments are forwards, futures, options and interest
rate swaps:
▪ Forward: A forward is a contract between two parties in which the exchange occurs at the end of
the contract at a particular price.
▪ Future: A future is a derivative transaction that involves the exchange of derivatives on a
determined future date at a predetermined price.
▪ Options: An option is an agreement between two parties in which the buyer has the right to
purchase or sell a particular number of derivatives at a particular price for a particular period of time.
▪ Interest Rate Swap: An interest rate swap is an agreement between two parties which involves the
swapping of interest rates where both parties agree to pay each other interest rates on their loans in
different currencies, options, and swaps.
▪
4. Exchange-Traded Funds:
Exchange-traded funds are a pool of the financial resources of many investors which are used to buy
different capital market instruments such as shares, debt securities such as bonds and derivatives.
Most ETFs are registered with the Securities and Exchange Board of India (SEBI) which makes it
an appealing option for investors with a limited expert having limited knowledge of the stock market.

ETFs having features of both shares as well as mutual funds are generally traded in the stock market
in the form of shares produced through blocks.

ETF funds are listed on stock exchanges and can be bought and sold as per requirement during the
equity trading time.

5. Foreign Exchange Instruments:

Foreign exchange instruments are financial instruments represented on the foreign market. It mainly
consists of currency agreements and derivatives.
Based on currency agreements, they can be broken into three categories i.e spot, outright forwards
and currency swap

Money market

The term ‘Money Market’, according to the Reserve Bank of India, is used to define a market where
short-term financial assets are traded.

Features of Money Market

A few general money market features are:

• It is fund-term market funds.

• It’s maturity period up to one year.
 • It trades with assets that can be transformed into cash easily.
• All the transactions take place through phone, email, text, etc.
• Broker not required for the transaction
• The components of a money market are the Commercial Banks, Non-banking financial
companies and Central Bank, etc.

Types Of Money Market Instruments

Treasury Bills (T-Bills)
Issued by the Central Government, Treasury Bills are known to be one of the safest money market
instruments available. However, treasury bills carry zero risk. I.e. are zero risk instruments.
Therefore, the returns one gets on them are not attractive. Treasury bills come with different maturity
periods like 3-month, 6-month and 1 year and are circulated by primary and secondary markets.
Treasury bills are issued by the Central government at a lesser price than their face value. The interest
earned by the buyer will be the difference of the maturity value of the instrument and the buying
price of the bill, which is decided with the help of bidding done via auctions. Currently, there are 3
types of treasury bills issued by the Government of India via auctions, which are 91-day, 182-day
and 364-day treasury bills.
Certificate of Deposits (CDs)
A Certificate of Deposit or CD, functions as a deposit receipt for money which is deposited with a
financial organization or bank. . First announced in 1989 by RBI, Certificate of Deposits have
become a preferred investment choice for organizations in terms of short-term surplus investment as
they carry low risk while providing interest rates which are higher than those provided by Treasury
bills and term deposits
Certificate of Deposits are also relatively liquid, which is an added advantage, especially for issuing
banks.
However, a Certificate of Deposit is different from a Fixed Deposit Receipt in two aspects. The first
aspect of difference is that a CD is only issued for a larger sum of money. Secondly, a Certificate of
Deposit is freely negotiable
Like treasury bills, CDs are also issued at a discounted price and their tenor ranges between a span
of 7 days up to 1 year. However, banks issue Certificates of Deposits for durations ranging from 3
months, 6 months and 12 months. They can be issued to individuals (except minors), trusts,
companies, corporations, associations, funds, non-resident Indians, etc.
Commercial Papers (CPs)
Commercial Papers can be compared to an unsecured short-term promissory note which is issued
by highly rated companies with the purpose of raising capital to meet requirements directly from the
market. Commercial papers are actively traded in secondary market.
CPs usually feature a fixed maturity period which can range anywhere from 1 day up to 270 days.
Highly popular in countries like Japan, UK, USA, Australia and many others, Commercial Papers
promise higher returns as compared to treasury bills and are automatically not as secure in
comparison.
Repurchase Agreements (Repo)
Repurchase Agreements, also known as Reverse Repo or simply as Repo, are loans of a short
duration which are agreed upon by buyers and sellers for the purpose of selling and repurchasing.
Repo / Reverse Repo transactions can be done only between the parties approved by RBI.
 Transactions are only permitted between securities approved by the RBI like treasury bills, central
or state government securities, corporate bonds and PSU bonds.
Banker's Acceptance (BA)
Banker's Acceptance or BA is basically a document promising future payment which is guaranteed
by a commercial bank. Similar to a treasury bill, Banker’s Acceptance is often used in money market
funds and specifies the details of the repayment like the amount to be repaid, date of repayment and
the details of the individual to which the repayment is due. Banker’s Acceptance features maturity
periods ranging between 30 days up to 180 days.
Call Money
It is a segment of the market where scheduled commercial banks lend or borrow on short notice (say
a period of 14 days). In order to manage day-to-day cash flows.
The interest rates in the market are market-driven and hence highly sensitive to demand and supply.
Also, the interest rates have been known to fluctuate by a large % at certain times.

Differences between Money Market and Capital Market

Sl.no Particulars Money market Capital market
1 Definition A random course of financial institutions, A kind of financial market where the
bill brokers, money dealers, banks, etc., company or government securities
wherein dealing on short-term financial are generated and patronised with
tools are being settled is referred to as the intention of establishing long-
Money Market term finance to coincide with the
capital necessary is called Capital
Market.
2 Market nature Money markets are informal in nature. Capital markets are formal in nature.
3 Instruments Commercial Papers, Treasury Certificate of Bonds, Debentures, Shares, Asset
involved Deposit, Bills, Trade Credit, etc. Secularisation, Retained Earnings,
Euro Issues, etc.
4 Investors type Commercial banks, non-financial Stockbrokers, insurance companies,
institutions, central bank, chit funds, etc. . Commercial banks, underwriters, etc
5 Market Money markets are highly liquid. Capital markets are comparatively
liquidity less liquid.
6 Risk involved Money markets have low risk. Capital markets are riskier in
comparison to money markets.
7 Maturity of Instruments mature within a year. Instruments take longer time to
instruments attain maturity
8 Purpose served To achieve short term credit requirements of To achieve long term credit
the trade. requirements of the trade.
9 Return on ROI is usually low in money market ROI is comparatively high in capital
investment market
10 Functions Increasing liquidity of funds in the economy Stabilising economy by increase in
served savings

Stock exchange -Definition:

A stock exchange is a marketplace, where financial securities issued by companies are bought and

sold. They are part of the broader capital market ecosystem. Securities issued by companies, such as
shares and bonds, are traded on the stock exchanges, after they have been issued in the primary

market.

In India BSE, formerly known as Bombay Stock Exchange, and National Stock Exchange (NSE) are

two main stock exchanges.

Stock exchanges play a key role in creating liquidity for financial securities. Securities trading on

stock exchanges, is based on an order matching algorithm, which ensures that the best buy order

matches with the best sell order. Stock exchanges earn money by charging a fee to the trading

members.

Under the Securities Contract (Regulation) Act, 1956, the term stock exchange is defined “as an

association, organisation or body of individuals- whether incorporated or not-established for

the purpose of assisting, regulating and controlling the business in buying, selling and dealing

in securities.”

Features of Stock Exchange:

• A market for securities- It is a wholesome market where securities of government,

corporate companies, semi-government companies are bought and sold.
• Second-hand securities- It associates with bonds, shares that have already been announced
by the company once previously.
• Regulate trade in securities- The exchange does not sell and buy bonds and shares on its
own account. The broker or exchange members do the trade on the company’s behalf.
• Dealings only in registered securities- Only listed securities recorded in the exchange
office can be traded.
• Transaction- Only through authorised brokers and members the transaction for securities
can be made.
• Recognition- It requires to be recognised by the central government.
• Measuring device- It develops and indicates the growth and security of a business in the
index of a stock exchange.
• Operates as per rules– All the security dealings at the stock exchange are controlled by
exchange rules and regulations and SEBI guidelines.

Functions of Stock Exchange

Following are some of the most important functions that are performed by stock exchange:

1. Role of an Economic Barometer: Stock exchange serves as an economic barometer that

is indicative of the state of the economy. It records all the major and minor changes in the
 share prices. It is rightly said to be the pulse of the economy, which reflects the state of the
economy.
2. Valuation of Securities: Stock market helps in the valuation of securities based on the
factors of supply and demand. The securities offered by companies that are profitable and
growth-oriented tend to be valued higher. Valuation of securities helps creditors, investors
and government in performing their respective functions.
3. Transactional Safety: Transactional safety is ensured as the securities that are traded in the
stock exchange are listed, and the listing of securities is done after verifying the company’s
position. All companies listed have to adhere to the rules and regulations as laid out by the
governing body.
4. Contributor to Economic Growth: Stock exchange offers a platform for trading of
securities of the various companies. This process of trading involves continuous
disinvestment and reinvestment, which offers opportunities for capital formation and
subsequently, growth of the economy.
5. Making the public aware of equity investment: Stock exchange helps in providing
information about investing in equity markets and by rolling out new issues to encourage
people to invest in securities.
6. Offers scope for speculation: By permitting healthy speculation of the traded securities,
the stock exchange ensures demand and supply of securities and liquidity.
7. Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready
platform for the sale and purchase of securities. This gives investors the confidence that the
existing investments can be converted into cash, or in other words, stock exchange offers
liquidity in terms of investment.
8. Better Capital Allocation: Profit-making companies will have their shares traded actively,
and so such companies are able to raise fresh capital from the equity market. Stock market
helps in better allocation of capital for the investors so that maximum profit can be earned.
9. Encourages investment and savings: Stock market serves as an important source of
investment in various securities which offer greater returns. Investing in the stock market
makes for a better investment option than gold and silver.

NSE & BSE

India’s two main stock exchanges are the Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE). These two are among Asia’s largest stock exchange surpassed only by the stock
exchanges of Japan and China
The Bombay Stock Exchange is one of Asia’s oldest stock exchange, beginning operations on July
9, 1875, as “The Native Share & Stock Brokers Association”.
The National Stock Exchange is India’s biggest stock exchange in terms of market capitalization. Its
operation beginning in 1992, it was the first exchange to bring in fully automated trading to India.

Differences between NSE and BSE

NSE BSE
 It is one of the biggest stock exchanges India The BSE is one of Asia’s oldest stock exchange
along with being a harbinger of technological markets which offers a legacy of high-speed
advances by the introduction of fully automated trading
trading systems

As electronic trading was incorporated from the Only in 1995 did BSE switch to electronic
beginning of its establishment, it always has trading after following a paper trading pattern
been a fully electronic stock exchange since 1875.
promoting paperless trade

In the global stock exchange rankings, NSE The BSE stands at 10th position in the global
stands at the 11th Position stock exchange rankings

The NSE has the lead in this segment as it has BSE enjoys far lower volumes among investors
monopolized it. and traders alike

The NSE has more than 1600 companies listed The BSE has more than 5000 companies listed
under it under it.

NSE’s Stock Index – NIFTY – gives top 50 BSE’s Stock Index – SENSEX gives top 30
stock index stock index

NSE was recognized as a stock exchange in BSE became a recognized stock exchange in
1993 1957

NSE promotes trading in equity, debts and BSE promotes trading in debt instruments,
currency derivatives mutual funds and currencies

Over-The-Counter Exchange of India (OTCEI)

The Over-The-Counter Exchange of India (OTCEI) is an electronic stock exchange based in India
that consists of small- and medium-sized firms aiming to gain access to overseas capital
markets, including electronic exchanges in the U.S. such as the NASDAQ. There is no central place
of exchange, and all trading occurs through electronic networks.

• The Over-The-Counter Exchange of India (OTCEI) is an Indian electronic stock exchange

composed of small- and mid-cap companies.
• The purpose of the OTCEI is for smaller companies to raise capital, which they cannot do
at the national exchanges due to their inability to meet the exchange requirements.
• The OTCEI implements specific capitalization rules that make it suited for small- to
medium-sized companies while preventing larger companies from being listed.
• The key players in the OTCEI include brokers, market makers, custodians, and transfer
agents.
Features of the Over-The-Counter Exchange of India (OTCEI)

The OTCEI has some special features that make it a unique exchange in India as well as a growth
catalyst for small- to medium-sized companies. The following are some of its unique features:

• Stock Restrictions: Stocks that are listed on other exchanges will not be listed on the
OTCEI and, conversely, stocks listed on the OTCEI will not be listed on other exchanges.
• Minimum Capital Requirements: The requirement for the minimum issued equity capital
is 30 lakh rupees, which is approximately $40,000.
• Large Company Restrictions: Companies with issued equity capital of more than 25 crore
rupees ($3.3 million) are not allowed to be listed.
• Member Base Capital Requirement: Members must maintain a base capital of 4 lakh
rupees ($5,277) to continue to be listed on the exchange.

Trading Mechanism
The trading mechanism in the stock exchange is based on a transaction between a buyer, seller,
and a trading specialist who actually executes transactions in a stock exchange.

In general, the trading mechanism is similar to a simple auction, with investors biddng on a
particular stock or security. If the bid is accepted by the owner of the security, the trading
specialist executes the sale. Most major stock exchanges trade a collection of stocks, bonds,
and other domestic and foreign investments.
There are two main types of trading mechanisms:

• Order driven markets

• Quote driven markets
1.Trading Mechanisms: Quote Driven
In a quote driven market, continuous prices or “quotes” are provided to buyers and sellers. These
prices are provided by market makers, which mean these types of systems are better suited for dealer
or OTC markets. For a buyer, the price provided is the price a dealer is willing to sell at. For a seller,
the price provided is the price a dealer is willing to buy at. Typically, the quoted buy price will be
lower than the sell price. The spread is the profit that the market maker, the dealer, makes.
2.Trading Mechanisms: Order Driven
In an order driven market, buyers and sellers of assets are able to place orders for assets they wish
to purchase or sell. They can list at market price, which executes a market order instantaneously at
the best available price. Alternatively, they can list a fixed/limit price, which executes either a limit
or stop order, not to be executed until certain pricing conditions are met.
In an order driven market, counterparties are not necessarily available immediately, depending on
the listed price. Because this is so, order driven trading mechanisms are more suited for exchanges.
Orders will execute once a suitable counterparty is found for each buyer or seller. In other words, a
buy order will only execute if a seller is found who is willing to sell at the specified limit price.
Order driven trading mechanisms are often supported by an order book.
Order Book
An order book is the system or database that operates behind an order driven trading mechanism.
The book lists all buyers and sellers, as well as their intended bid or ask prices.
 IPO- Initial Public Offering is the process by which a private company can go public by sale of
its stocks to general public. It could be a new, young company or an old company which decides
to be listed on an exchange and hence goes public.

Companies can raise equity capital with the help of an IPO by issuing new shares to the public or
the existing shareholders can sell their shares to the public without raising any fresh capital.
Online Trading

Online trading is basically the act of buying and selling financial products through an online trading
platform.”

Online trading forms part of E-Commerce, which stands for Electronic Commerce.

The use of online trading increased dramatically in the mid- to late-'90s with the introduction of
affordable high-speed computers and internet connections.

Stocks, bonds, mutual funds, ETFs, options, futures, and currencies can all be traded online. Also
known as e-trading or self-directed investing.

Benefits of Online Trading Account

There are several advantages and benefits of having a trading account which are as follows:
1. Smooth and Continuous Transactions
a. The major advantage of having an online trading account is continuous transactions. In addition,
online trading has made the process of transferring funds and conducting equity trading simple
and quick.
With the rise in advanced technology, several clients can save and invest easily with the help of
an online trading account.
2. It Determines Profit or Loss
a. An online trading account helps the traders to determine a profit or loss of a certain company
which helps them to ascertain or measure the profitability position of the particular company
for the certain time period.
3. Delivers Reliable Information
a. Investing in the equity market is all about making correct decisions at the right time. Several
online trading platforms have knowledgeable and experienced professionals that provide
extensive research reports to all the investors.
This report helps the investors make the right investment decisions, leading to higher chances
of earning.
4. Flexibility
a. Several trading platforms have turned to app-based platforms that help the investors directly get
access with the help of a smartphone, laptop and other devices.
The introduction of online trading made it flexible to keep track from anywhere around the
world and at any point.
5. Provides Customized Support
Experienced and trained executives by online trading platforms deliver customized support to
all their clients. Whether it is a technical issue or having difficulty handling the trading platform,
they will be there, ready to solve all the problems.
Investors can also set alerts with the help of SMS or emails to get the notification related to buy
and sell targets.
6. One-Point Access
An investor can find several exchanges in India where different securities and commodities
are traded regularly. The major leading exchanges in India are:
1) Bombay Stock Exchange (BSE)
2) National Stock Exchange (NSE)
3) National Commodity and Derivatives Exchange (NCDEX)
4) Multi Commodity Exchange (MCX)
Thus, having an online trading account helps them get instant access to all these major
exchanges via a common trading platform that helps investors create instant wealth.
7. It Helps Them in Monitoring
Many top online trading platforms help investors to monitor and buy or sell shares easily in one
single place as per their convenience.
By having a simple and easy-to-use interface, an online trading account offers the performance
of the stocks throughout the day to all its investors.
Nowadays, investors can download the apps of their reliable broking firm on their devices and
manage their trading account online without any trouble.
8. Lower Fees
If an investor is investing his money in an old-school way, they spend more money than online
trading. Similarly, if an investor is investing via a reliable broker and trading in large volumes,
it is feasible for him to negotiate broker’s fees in online trading.
9. 24x7 Instant Access
An online trading account helps the investors analyze the stock’s performance and offers 24x7
instant access to all its users. In addition, they have higher flexibility, which means an investor
can log in easily from any location.
No matter whatever doubt they have, they can get instant access to their reliable trading
platforms from internet browsers and with their mobile-based applications.
10. Transparency
The details shared from the investor’s online trading account display the extra charges added to
every transaction from their account.
These charges include brokerage charges, taxes and more. Thus, it helps the investors get more
clarity on the exact calculations for their trade
11. No need for a middleman
12. Online trading facilitates the trader to conduct his trades even without speaking to the brokerage.
This feature captivated many of the traders who do not possess the fortune to afford full-service
brokerages.
13. It is affordable and accelerated
14. Earlier the traders have paid the brokers for every trade they perform and it costed more money
for the trader in the process. By allowing the trader to execute their trades, online trading levied
the brokerage charges placed by a traditional broker if the trade was done physically. Also, a trade
occurs place instantaneously, if it is online
15. Control over your investments
16. One of the exceptional features of online trading is that it gives both the traders and the investors
great control over their investments. Online trading provides traders with the experience of
trading without being influenced or interfered with by the brokerages while making a decision.
One can trade whenever and wherever one wants to.
17. Real-time monitoring over the investments
18. Online trading platforms are customized with advanced tools and interfaces to keep track of your
investing performance thus equip the trader with information to do their own research. The traders
will be able to see the real-time profit or loss wherever and whenever they log in from their
devices.
What is BOLT?

• Bombay Stock Exchange's trading system is popularly known as BOLT (BSE's Online
Trading System). The BSE has deployed an Online Trading system (BOLT) on March 14,
1995
• BOLT has a two-tier architecture. The trader workstations are connected directly to the
backend server, which acts as a communication server and a Central Trading Engine (CTE).
• Other services like information dissemination, index computation, and position monitoring
are also provided by the system.
• Access to market related information through the trader workstations is essential for the
market participants to act on real-time basis and take immediate decisions
• BOLT has been interfaced with various information vendors like Bloomberg, Bridge, and
Reuters. Market information is fed to news agencies in real time
• It makes the trade efficient, transparent and time saving.

DIFFERENT TYPES OF INVESTORS

Individual Investors

Individual investors may be investing either for short-term or long-term goals. A short-term
investment goal may be their children’s education or the purchase of a house. Long-term investment
goals revolve around providing income for retirement. These implication of this is that some
investors are focused on capital growth and look for those investments with potential for capital
appreciation while retirees will want income-producing assets. The structuring of a portfolio for an
investor will also be dependent on their financial circumstances such as home-ownership,
employment prospects, and other financial obligations.

Institutional Investors

There are many different types of institutional investors. Indeed, institutional assets constitute a
major portion of investment market. Pension funds, endowments, charities, banks, insurance
companies, investment funds and Sovereign Wealth Funds (SWF) are all classified as institutional
investors. These institutional investors also have different financial objectives.

PERSONAL INVESTORS

Most business owners usually depend on their close acquaintances, friends or family to help them
by investing in their business, normally during the initial stages. These types of investors are called
personal investors, and even though they can assist with funding, there is a limit to how much they
can invest in your company.

It is often easier to convince a loved one to help you out, but there is heavy documentation that is
required for which they can be taxed for helping as well. So, if you are going to take a personal
investor’s help, ensure that you consult a lawyer to help you avoid any complications.

ANGEL INVESTORS
Angel investors are those who put their money in small startups or new entrepreneurs. This is the
most famous type of investors that most people may have heard about before. An angel investor
might even be close to the startup owner, like friends or family.

Angel investment is normally either a one-time off funding for the business to propel, or an on-going
investment to support and take the company ahead in the initial stages. Angel investors usually offer
much more favorable terms as compared to the other type of investors. The reason is that angel
investors invest in the entrepreneur opening a business, and not the viability of the company.

In short, angel investors are always focused on helping the startups to grow in the initial stages
instead of obtaining a profit from it. As a matter of fact, angel investors are also referred to as
business angels, seed investors, private investors, angel funders, or information investors.

VENTURE CAPITALIST

A venture capitalist (VC) is an investor who offers capital to the startups that are believed to have
long-term growth potential. Venture capitalists are normally investment banks, well-off investors,
and any other financial institutions. Even though this is a risky way for investors to put in their funds,
a successful payoff is worth it.

OTHERS (PEER-TO-PEER LENDERS)

Peer-to-peer lenders are groups or individuals who provide capital to small business owners. But to
obtain this capital from these type of investors, the owners would need to apply with companies that
are experts in peer-to-peer lending, like the Lending Club or Prosper. As soon as the owner’s
application gets approved by the company, the lenders would then determine if the company is right
for their investment or not.

Speculators

A speculator is any entity or individual that attempts to make opportunistic profits from changes
in the prices of financial instruments over the short term. These individuals and institutions invest
their own or borrowed funds for a short period of time in the capital market instruments, bond,
equity, money market, and foreign exchange market.
The speculators are not genuine investors. They buy securities with a hope to sell them in future at a
profit. They are not interested in holding the securities for longer period. Hence, their very object of
buying the securities is to sell them and not to retain them. They are interested only in price
differentials.

Kinds of Speculators
The speculators are classified into four categories such as

1. Bull,
2. Bear,
3. Stag, and
4. Lame Duck.
1. Bull: A bull is an optimistic speculator. He expects a rise in the price of the securities in which he
deals. Therefore, he enters into purchase transactions with a view to sell them at a profit in the future.
If his expectation becomes a reality, he shall get the price difference without actually taking delivery
of the securities.
2. Dear: A bear is a pessimistic speculator who expects a sharp fall in the prices of certain securities.
He enters into selling contracts in certain securities on a future date. If the price of the security falls
as he expects he shall get the price difference.
3. Stag: A stag is considered as a cautious investor when compared to the bulls or bears. He is a
speculator who simply applies for fresh shares in new companies with the sole object of selling them
at a premium or profit as soon as he gets the shares allotted.
4. Lame Duck: When a bear is unable to meet his commitment immediately, he is said to be
struggling like a lame duck