Tag: University of Mumbai BMS Notes

Any skill that is useful in your life can be considered a life skill. Tying your shoe laces, swimming, driving a car and using a computer are, for most people, useful life skills. Broadly speaking, the term ‘life skills’ is usually used for any of the skills needed to deal well and effectively with the challenges of life.

Life skills are abilities for adaptive and positive behaviour that enable humans to deal effectively with the demands and challenges of life. This concept is also termed as psychosocial competency. The subject varies greatly depending on social norms and community expectations but skills that function for well-being and aid individuals to develop into active and productive members of their communities are considered as life skills.

Certain skills may be more or less relevant to you depending on your life circumstances, your culture, beliefs, age, geographic location, etc. However, in 1999, the World Health Organization identified six key areas of life skills:

• Communication and interpersonal skills. This broadly describes the skills needed to get on and work with other people, and particularly to transfer and receive messages either in writing or verbally.
• Decision-making and problem-solving. This describes the skills required to understand problems, find solutions to them, alone or with others, and then take action to address them.
• Creative thinking and critical thinking. This describes the ability to think in different and unusual ways about problems, and find new solutions, or generate new ideas, coupled with the ability to assess information carefully and understand its relevance.
• Self-awareness and empathy, which are two key parts of emotional intelligence. They describe understanding yourself and being able to feel for other people as if their experiences were happening to you.
• Assertiveness and equanimity, or self-control. These describe the skills needed to stand up for yourself and other people, and remain calm even in the face of considerable provocation.
• Resilience and ability to cope with problems, which describes the ability to recover from setbacks, and treat them as opportunities to learn, or simply experiences.

Behavior

Behavior is the actions and mannerisms made by individuals, organisms, systems or artificial entities in conjunction with themselves or their environment, which includes the other systems or organisms around as well as the physical environment. It is the computed response of the system or organism to various stimuli or inputs, whether internal or external, conscious or subconscious, overt or covert, and voluntary or involuntary.

Taking a behavior informatics perspective, a behavior consists of behavior actor, operation, interactions, and their properties. A behavior can be represented as a behavior vector.

Attitude

Attitude refers to feelings, beliefs, and behavior predispositions directed towards people, groups, ideas, or objects. It influences the behavior of the individuals. It decides how to act or behave in a particular situation. Attitude is a kind of habit. It is the usual way of doing things.

Everything in an organization will get better if the attitude of everyone gets better. Successes and failures in life depend upon the attitude of the individuals. If attitudes are positive, then human relations will be positive. It is internal and challenging to change.

Mannerism

Mannerism, also known as Late Renaissance, is a style in European art that emerged in the later years of the Italian High Renaissance around 1520, spreading by about 1530 and lasting until about the end of the 16th century in Italy, when the Baroque style largely replaced it. Northern Mannerism continued into the early 17th century.

Manners

A person with good manners shows respects towards feelings and sentiments of others living in the surroundings. He/she never differentiates people and shows equal regard to everyone. Modesty, humbleness, kindness, and courtesy are the essential traits of a well-behaving person. Hence, a well-behaved person never feels proud or arrogant and always take care of the feelings of others. Practicing good manners and following them all through the day will definitely bring sunshine and add qualities to life.

Etiquette

Etiquette in simpler words is defined as good behaviour which distinguishes human beings from animals. Human Being is a social animal and it is really important for him to behave in an appropriate way. Etiquette refers to behaving in a socially responsible way.

Ethos

Ethos in Management refers to the values and practices that the culture of India can contribute to service, leadership and management. These values and practices are rooted in Sanathana Dharma, and have been influenced by various strands of Indian philosophy.

Morality

Morality is the differentiation of intentions, decisions and actions between those that are distinguished as proper and those that are improper. Morality can be a body of standards or principles derived from a code of conduct from a particular philosophy, religion or culture, or it can derive from a standard that a person believes should be universal. Morality may also be specifically synonymous with “goodness” or “rightness“.

Moral philosophy includes meta-ethics, which studies abstract issues such as moral ontology and moral epistemology, and normative ethics, which studies more concrete systems of moral decision-making such as deontological ethics and consequentialism. An example of normative ethical philosophy is the Golden Rule, which states that: “One should treat others as one would like others to treat oneself.”

Immorality is the active opposition to morality while amorality is variously defined as an unawareness of, indifference toward, or disbelief in any particular set of moral standards or principles.

Determination commitment, Perseverance

Entrepreneurs are married to their ideas. They are passionate about these ideas and are ready to do anything to make things happen. When they face rough weather, entrepreneurs are willing to go to extreme lengths such as mortgaging their house, taking a cut in pay, ignoring their families and walking a stressful, lonely and deserted path. They are usually at their best when challenged by circumstances.

They are fired by situations that truly burn their candle of energies. In the face of heavy odds, they show tremendous amount of grit, determination, and perseverance. They are not prepared to come back empty handed and so they hang on to what they believe is right. They exhibit unwavering commitment to a cause that they believe to be beneficial to the company, as well as the society.

Courageousness

Courage is the choice and willingness to confront agony, pain, danger, uncertainty, or intimidation. Physical courage is bravery in the face of physical pain, hardship, even death or threat of death, while moral courage is the ability to act rightly in the face of popular opposition, shame, scandal, discouragement, or personal loss.

The classical virtue of fortitude is also translated “courage”, but includes the aspects of perseverance and patience.

Machiavellianism

Machiavellianism is being practical, emotionally distant, and believing that ends justify means.

Machiavellians are always wanting to win and are great persuaders. Here are the significant features of a high-mach individuals:

• High-Machs prefer precise interactions rather than beating about the bush.
• High-Machs tend to improvise; they do not necessarily abide by rules and regulations all the time.
• High-Machs get distracted by emotional details that are irrelevant to the outcome of a project.

Locus of Control

Locus of control is the center of control of an individual’s code of conduct. People can be grouped into two categories i.e., internals and externals respectively.

People who consider themselves as the masters of their own fates are known as internals, while, those who affirm that their lives are controlled by outside forces known as externals.

Before making any decision, internals actively search for information, they are achievement driven, and want to command their environment. Thus, internals do well on jobs that craves complex information processing, taking initiative and independent action.

Externals, on the other hand, are more compliant, more willing to follow instructions, so, they do well in structured, routine jobs.

Self-monitoring

Self-monitoring is the capability of regulating one’s behavior according to social situations. Individuals with high self-monitoring skill easily adjust their behavior according to external, situational factors. Their impulsive talents allow them to present public personae which are completely different from their private personalities.

However, people with low self-monitoring skills cannot cover themselves. Regardless of any situation, they are always themselves. They have an attitude of, “what you see is what you get.”

Self-esteem

It is the extent up to which people either like or dislike themselves. Self-Esteem is directly related to the expectations of success and on-the-job satisfaction.

Individuals with high self-esteem think that they have what it takes to succeed. So, they take more challenges while selecting a job.

On the other hand, individuals with low self-esteem are more susceptible to external distractions. So, they are more likely to seek the approval of others and to adapt the beliefs and behaviors of those they respect.

Risk taking

Generally, managers are reluctant on taking risks. However, individual risk-taking inclination affects the bulk of information required by the managers and how long it takes them to make decisions.

Thus, it is very important to recognize these differences and align risk-taking propensity with precise job demands that can make sense.

Communication is defined as transferring information to produce greater understanding. It can be done vocally (through verbal exchanges), through written media (books, websites, and magazines), visually (using graphs, charts, and maps) or non-verbally (body language, gestures, pitch of voice, and tone). All of these means of communication are essential Soft Skills that are vital for a successful Career.

How to Improve Your Communication Skills

Here are some pointers to look out for when looking to improve your ability to effectively communicate with others:

1. Listening

To become a good communicator, it is important to be a good listener. It is important to practice active listening pay close attention to what others are saying and clarify ambiguities by rephrasing their questions for greater understanding.

2. Conciseness

Convey your message in as few words as possible. Do not use filler words and get straight to the point. Rambling will cause the listener to tune out or be unsure of what you are talking about. Avoid speaking excessively and do not use words that may confuse the audience.

3. Body language

It is important to practice good body language, use eye contact, utilize hand gestures, and watch the tone of the voice when communicating with others. A relaxed body stance with a friendly tone will aid in making you look approachable by others.

Eye contact is important in communication look the person in the eye to indicate that you are focused on the conversation. But make sure to not stare at the person as it can make him or her uncomfortable.

4. Confidence

Be confident in what you say and in your communication interactions with others. Being confident can be as easy as maintaining eye contact, maintaining a relaxed body stance, and talking with concision. Try not to make statements sound like questions and avoid trying to sound aggressive or demeaning.

5. Open-mindedness

In situations where you disagree with what someone else has to say, whether it be with an employer, a co-worker, or a friend, it is important to sympathize with their point of view rather than simply try to get your message across. Respect the opinion of others and never resort to demeaning those who do not agree with you.

6. Respect

Respecting what others have to say and acknowledging them is an important aspect of communication. Being respectful can be as simple as paying attention to what they have to say, using the person’s name, and not being distracted. By respecting others, the other person will feel appreciated, which will lead to a more honest and productive conversation.

7. Using the correct medium

There are several different forms of communication to use it is important to choose the right one. For example, communicating in person about serious matters (layoffs, salary changes, etc.) is more appropriate than sending an email regarding the matter.

Importance

Smooth and Efficient Working of an Organisation:

In the words of George R. Terry, “It serves as the lubricant, fostering for the smooth operations of management process.” Communication makes possible the smooth and efficient working of an enterprise. It is only through communication that the management changes and regulates the actions of the subordinates in the desired direction.

Increases Managerial Efficiency:

Effective communication increases managerial efficiency. It is rightly said that nothing happens in management until communication takes place. The efficiency of manager depends upon his ability to communicate effectively with the members of his organisation. It is only through communication that management conveys its goals and desires, issues instructions and orders, allocates jobs and responsibility and evaluates performance of subordinates.

Promotes Co-operation and Industrial Peace:

Effective communication creates mutual understanding and trust among the members of the organisation. It promotes co-operation between the employer and the employees. Without communication, there cannot be sound industrial relations and industrial peace. It is only through communication that workers can put in their grievances, problems and suggestions to the management.

Motivation and Morale:

Communication is the means by which the behaviour of the subordinates is modified and change is effected in their actions. Through communication workers are motivated to achieve the goals of the enterprise and their morale is boosted. Although motivation comes from within yet the manager can also motivate people by effective communication, e.g., proper drafting of message, proper timing of communication and the way of communication, etc.

Basis of Decision-Making and Planning:

Communication is essential for decision-making and planning. It enables the management to secure information without which it may not be possible to take any decision. The quality of managerial decisions depends upon the quality of communication. Further, the decisions and plans of the management need to be communicated to the subordinates. Without effective communication, it may not be possible to issue instructions to others. Effective communication helps in proper implementation of plans and policies of the management.

Simplify and stay on message.

Use simple, straightforward language. Remember that Lincoln’s Gettysburg Address was 286 words, about two minutes long.

Make communication a priority.

Take classes, read books, magazine articles or learn from successful communicators around you. Seek a mentor or coach.

Be brief, yet specific.

For written and verbal communication, practice being brief yet specific enough, that you provide enough information for the other person to understand what you are trying to say. And if you are responding to an email, make sure that you read the entire email before crafting your response. With enough practice, you will learn not to ramble, or give way too much information.

Engage your listeners or readers.

Draw your listeners and readers into the conversation. Ask questions and invite opinions. Solicit their feedback.

Think before you speak.

Always pause before you speak, not saying the first thing that comes to mind. Take a moment and pay close attention to what you say and how you say it. This one habit will allow you to avoid embarrassments.

Make sure you are understood.

Don’t blame the other person for not understanding. Instead, look for ways to clarify or rephrase what you are trying to say so it can be understood.

Take time to respond.

After you’ve listened (and understood) take time to “draft” in your head what you want to say.

Develop your listening skills, too.

The best communicators are almost always the best listeners. Listen without judgment and don’t be distracted by thinking about what you want to say next. Then, respond, not react.

Respect your audience.

Recognize your message is not just about you or what you want. You should sincerely care about the needs and the unique perspectives of those to whom you are communicating. One of the best ways to show your respect is simply by paying attention to what they say.

Body language is important.

Studies show that 65% of all communication is non-verbal. Watch for visual signs that your listener understands, agrees or disagrees with your message. And be aware that your body is sending signals, too.

Maintain eye contact.

Whether speaking to a crowd or one-on-one, maintaining eye contact builds credibility and demonstrates you care about your listeners.

The Administration is a set of procedures for administering Management in a company. It consists of a number of steps and ways in order to build efficient programs, policies, and systems within an organization that will be followed to manage operations.

The fundamental role of the Administration is to lay the framework for the Organization. This framework is used by the Management to build plans and execute orders. Administration represents the top level of management professionals in a company. Usually, these are the business owners or the CEO of a company.

Simply put, management can be understood as the skill of getting the work done from others. It is not exactly same as administration, which alludes to a process of effectively administering the entire organization. The most important point that differs management from the administration is that the former is concerned with directing or guiding the operations of the organization, whereas the latter stresses on laying down the policies and establishing the objectives of the organization.

Broadly speaking, management takes into account the directing and controlling functions of the organization, whereas administration is related to planning and organizing function.

With the passage of time, the distinction between these two terms is getting blurred, as management includes planning, policy formulation, and implementation as well, thus covering the functions of administration. In this article, you will find all the substantial differences between management and administration.

The administration is a systematic process of administering the management of a business organization, an educational institution like school or college, government office or any nonprofit organization. The main function of administration is the formation of plans, policies, and procedures, setting up of goals and objectives, enforcing rules and regulations, etc.

Administration lays down the fundamental framework of an organization, within which the management of the organization functions.

The nature of administration is bureaucratic. It is a broader term as it involves forecasting, planning, organizing and decision-making functions at the highest level of the enterprise. Administration represents the top layer of the management hierarchy of the organization. These top-level authorities are the either owners or business partners who invest their capital in starting the business. They get their returns in the form of profits or as a dividend.

Constituents of Administration are:

• Formations of all company policies.
• Framing the plan of actions for various objectives of a company.
• Setting the goals for all departments in the Organization.
• Enforcing the rules and regulations within the Organization.

The capital market encompasses the trade in both stocks and bonds. These are long-term assets bought by financial institutions, professional brokers, and individual investors.

The capital market is where stocks and bonds are traded. Its movements from hour to hour are constantly monitored and analyzed for clues to the health of the economy at large, the status of every industry in it, and the consensus for the short-term future.

The overriding goal of the companies institutions that enter into the capital markets is to raise money for their long-term purposes, which usually come down to expanding their businesses and increasing their revenues. They do this by issuing stock shares and by selling corporate bonds.

Money Market

The money market is the trade in short-term debt. It is a constant flow of cash between governments, corporations, banks, and financial institutions, borrowing and lending for a term as short as overnight and no longer than a year.

The money market is a good place for individuals, banks, other companies, and governments to park cash for a short period of time, usually one year or less. It exists so that businesses and governments that need cash to operate can get it quickly at a reasonable cost, and so that businesses that have more cash than they need can put it to use.

	Capital market	Money market
Liquidity	Capital market securities are considered liquid because of stock exchange but compared to money market instruments these are less liquid.	Money market securities enjoy higher degree of liquidity.
Investment outlays	The investment in capital market does not require huge financial investment	The money market instruments are quite expensive so huge financial investment is required.
Participants	Thee participants of capital market are financial institutions, banks, public and private companies, foreign and ordinary retail investors from public.	Thee participants of money market are banks, private and public companies but foreign and ordinary retail investors do not participate in money market.
Safety	The instruments of the capital market are riskier.	The instruments in the money market are safe and less risky due to short duration.
Instruments	The instruments dealt in this market are bonds, debentures, equity shares and stock.	The instruments dealt in the market are bills of exchange, treasury bills, banker’s acceptance, etc

The organised sector of the money market con­sists of the Reserve Bank of India, commercial banks, companies lending money, financial inter­mediaries such as the Life Insurance, Credit and Investments Corporation of India, Unit Trust of India, Land Mortgage Banks, Cooperative Banks, Insurance Companies etc. and call loan brokers, and stock brokers.

The unorganised sector of the money market is largely made up of indigenous bankers, money lenders, traders, commission agents etc., some of whom combine money lending with trade and other activities.

Generally speaking, these two sec­tors of the Indian money market — those institu­tions which come directly or indirectly under the broad regulations of the Reserve Bank constitute the organised sector, while the others which fall completely outside the purview of the central bank­ing regulations, make up the unorganised sector.

The organised sector is mainly composed of the commercial banks, cooperative banks and dis­count houses, acceptance houses and land mort­gage banks. The unorganised sector is largely outside the control of the Central Bank and is characterised by lack of uniformity in their business dealings. In India, the indigenous bankers and money lend­ers, traders, are important segment of unorgan­ised money market.

Features of the Indian money market:

First, a major characteristic of the Indian money market is that the seasonality of demand for credit broadly follows the course of the agricultural sea­sons. The implication is that during the busy sea­son the commercial banks have to borrow from the RBI, while the level of such borrowings declines during the slack season. This provides a very use­ful lever to the RBI in controlling the volume of credit.

Secondly, Indian money market consists of organised and unorganised sectors. As already pointed out, the organised sector is composed of the RBI, Commercial banks, Co-operative banks, Land mortgage banks. Considering the continen­tal character of the country, the banking develop­ment is most inadequate for the needs of trade and industry largely because of the hoarding habit of the people.

Thirdly, with a view to strengthening the or­ganised money market in India, new institutions have been established and consolidated to either lend on long-term basis or regulate credit in a pre­scribed manner. The new institutions which have come up after independence are IFC (1948), NIDC (1954), ICIC (1955), SFC (1951), NSIC (1955), UTI (1964) and the IDBI (1964).

Fourthly, the Indian money market is domi­nated by the unorganised sector. The only link that exists between the organised and unorganised sec­tors is through commercial banks. Indigenous bank­ers carry on their activities through the media of these commercial banks.

In rural areas, they do so through cooperative credit societies. However, a number of credit socie­ties are under the control of money lenders. It seems that a growing number of spurious cooperative so­cieties have been organised solely to enable these money lenders to take advantage of the concessions they offer.

Fifthly, unorganised market has of late been strengthened with the addition of unaccounted or black money. A conservative estimate places this amount at between Rs. 2,500 and Rs. 10,000 crores. As a result of the income velocity of money, con­siderable savings will be accruing in the unaccounted income sector. These sectors seek out­lets which again escape from the tax net and thus enlarge the un-accounted sector. Unaccounted money is used in smuggling of goods, drugs, and precious metals and in real estates. These high re­turn activities are invariably financed by the black money.

The impact of unaccounted money on the money market is very significant. With its growth in the country a number of mushroom indigenous bankers have sprang up, who are quite different from the traditional bankers and it reported that they lend money at very high rate of interest.

The indigenous money market has itself become a law­less market. The unaccounted money as part of the unorganised money market is invested in property, smuggling, trade and real estate. This fact has fur­ther limited the effectiveness of monetary policy.

Sixthly, there is no direct link between the un­organised and organised money markets. It is es­sential to establish a link between the two markets.

The above figure shows the unorganised money market with the growth of unaccounted money.

Seventhly, the bill market system is yet to de­velop fully. The bill market is one of the important sub-markets of the money market. The bill market or discount market refers to the market where short dated bills are bought and sold. The treasury bills are the most important instrument used in the bill market. The Bill Market scheme was introduced in 1952 and in 1970 but is only partially successful.

Lastly, a well-developed money market will have close links with the leading money markets of the world and will be sensitive to the develop­ments in these foreign markets. But the Indian money market is an insular one with little contract with foreign markets.

Partly due to the exchange control restrictions on capital movements there is no movement of funds between the Indian money market and the foreign market. The Indian money market does not attract any foreign funds.

Money market is the place or mechanism where short-term instruments that mature within a year are traded. Money market meets the work­ing capital requirements of industry, trade and commerce. Long-term requirements of industries are not met by money market instruments.

The cen­tral bank occupies a pivotal position in money market. It is regarded as ‘presiding deity’ of money markets. Its function is not only that of a watch dog of the monetary system but also of a promo­tional and development banker.

On the other hand, capital market is a market in which lenders or investors provide long-term funds in exchange for financial assets offered by borrowers and holders. The primary purpose of capital market is to direct the flow of savings into the long-term investments. The distinction between the money market and capital market is based on the difference in the period of the financial assets.

Though the terms money market and capital market are used interchangeably, they differ in a number of ways. Money market primarily exists as a means of liquidity adjustment. But a capital market’s main function is to serve as a link between long-term in­vestors and long-term borrowers.

Secondly, money market and capital market instruments also differ in terms of risk. Money market instruments generally carry low credit risk and low market risk. Capital market instruments include bonds, debentures, equity shares and pref­erence shares.

Thirdly, money market is dominated by one set of financial institutions commercial banks and the central bank. But in the capital market, no sin­gle institution dominates the market.

However, there is no fundamental difference between capital market and money market regard­ing transferring of resources. There is no close nexus in money and capital markets.

Commercial banks are active in money mar­ket while non-banking financial institutions and public financial institutions are active in capital market. There is a considerable degree of overlap in the function of different financial institutions.

Primary Market

primary market, securities are created for the first time for investors to purchase. New securities are issued in this market through a stock exchange, enabling the government as well as companies to raise capital.

For a transaction taking place in this market, there are three entities involved. It would include a company, investors, and an underwriter. A company issues security in a primary market as an initial public offering (IPO), and the sale price of such new issue is determined by a concerned underwriter, which may or may not be a financial institution. An underwriter also facilitates and monitors the new issue offering. Investors purchase the newly issued securities in the primary market. Such a market is regulated by the Securities and Exchange Board of India (SEBI).

The entity which issues securities may be looking to expand its operations, fund other business targets or increase its physical presence among others. Primary market example of securities issued includes notes, bills, government bonds or corporate bonds as well as stocks of companies.

Functions of Primary Market

• New issue offer

The primary market organises offer of a new issue which had not been traded on any other exchange earlier. Due to this reason, it is also called a New Issue Market. Organising new issue offers involves a detailed assessment of project viability, among other factors. The financial arrangements for the purpose include considerations of promoters’ equity, liquidity ratio, debt-equity ratio and requirement of foreign exchange.

• Underwriting services

Underwriting is an essential aspect while offering a new issue. An underwriter’s role in a primary marketplace includes purchasing unsold shares if it cannot manage to sell the required number of shares to the public. A financial institution may act as an underwriter, earning a commission on underwriting.

Investors rely on underwriters for determining whether undertaking the risk would be worth its returns. It may so thus happen that an underwriter ends up buying all the IPO issue, and subsequently selling it to investors.

• Distribution of new issue

A new issue is also distributed in a primary marketing sphere. Such distribution is initiated with a new prospectus issue. It invites the public at large to buy a new issue and provides detailed information on the company, issue, and involved underwriters.

Types of Primary Market Issuance

After the issuance of securities, investors can purchase such securities in various ways. There are 5 types of primary market issues.

• Public issue

Public issue is the most common method of issuing securities of a company to the public at large. It is mainly done via Initial Public Offering (IPO) resulting in companies raising funds from the capital market. These securities are listed in the stock exchanges for trading.

A privately held company converts into a publicly-traded company when its shares are offered to the public initially through IPO. Such public offer allows a company to raise funds for expansion of business, improving infrastructure, and repay its debts, among others. Trading in an open market also increases a company’s liquidity and provides a scope for issuance of more shares in raising further capital for business.

The Securities and Exchange Board of India is the regulatory body that monitors IPO. As per its guidelines, a requisite due enquiry is conducted for a company’s authenticity, and the company is required to mention its necessary details in the prospectus for a public issue.

• Private placement

When a company offers its securities to a small group of investors, it is called private placement. Such securities may be bonds, stocks or other securities, and the investors can be both individual and institutional.

Private placements are easier to issue than initial public offerings as the regulatory stipulations are significantly less. It also incurs reduced cost and time, and the company can remain private. Such issuance is suitable for start-ups or companies which are in their early stages. The company may place this issuance to an investment bank or a hedge fund or place before ultra-high net worth individuals (HNIs) to raise capital.

• Preferential issue

A preferential issue is one of the quickest methods available to companies for raising capital. Both listed and unlisted companies can issue shares or convertible securities to a select group of investors. However, the preferential issue is neither a public issue nor a rights issue. The shareholders in possession of preference shares stand to receive the dividend before the ordinary shareholders are paid.

• Qualified institutional placement

Qualified institutional placement is another kind of private placement where a listed company issues securities in the form of equity shares or partly or wholly convertible debentures apart from such warrants convertible to equity shares and purchased by a Qualified Institutional Buyer (QIB).

QIBs are primarily such investors who have the requisite financial knowledge and expertise to invest in the capital market. Some QIBs are:

• Foreign Institutional Investors registered with the Securities and Exchange Board of India.
• Foreign Venture Capital Investors.
• Alternate Investment Funds.
• Mutual Funds.
• Public Financial Institutions.
• Insurers.
• Scheduled Commercial Banks.
• Pension Funds.

Issuance of qualified institutional placement is simpler than preferential allotment as the former does not attract standard procedural regulations like submitting pre-issue filings to SEBI. The process thus becomes much easier and less time-consuming.

• Rights and bonus issues

Another issuance in the primary market is rights and bonus issue, in which the company issues securities to existing investors by offering them to purchase more securities at a predetermined price (in case of rights issue) or avail allotment of additional free shares (in case of bonus issue).

For rights issues, investors retain the choice of buying stocks at discounted prices within a stipulated period. Rights issue enhances control of existing shareholders of the company, and also there are no costs involved in the issuance of these kinds of shares. For bonus issues, stocks are issued by a company as a gift to its existing shareholders. However, the issuance of bonus shares does not infuse fresh capital.

Secondary Market

The term “secondary market” is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a “second” or “third” market has developed for use in ethanol production).

A secondary market is a platform wherein the shares of companies are traded among investors. It means that investors can freely buy and sell shares without the intervention of the issuing company. In these transactions among investors, the issuing company does not participate in income generation, and share valuation is rather based on its performance in the market. Income in this market is thus generated via the sale of the shares from one investor to another.

In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid (originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly; this is how stock exchanges originated, see History of the Stock Exchange). As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the more liquid the market.

Fundamentally, secondary markets mesh the investor’s preference for liquidity (i.e., the investor’s desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user’s preference to be able to use the capital for an extended period of time.

Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may also matter in the secondary market because:

1) Price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers

2) Accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.

Functions of Secondary Market

• A stock exchange provides a platform to investors to enter into a trading transaction of bonds, shares, debentures and such other financial instruments.
• Transactions can be entered into at any time, and the market allows for active trading so that there can be immediate purchase or selling with little variation in price among different transactions. Also, there is continuity in trading, which increases the liquidity of assets that are traded in this market.
• Investors find a proper platform, such as an organised exchange to liquidate the holdings. The securities that they hold can be sold in various stock exchanges.
• A secondary market acts as a medium of determining the pricing of assets in a transaction consistent with the demand and supply. The information about transactions price is within the public domain that enables investors to decide accordingly.
• It is indicative of a nation’s economy as well, and also serves as a link between savings and investment. As in, savings are mobilised via investments by way of securities.

Different Instruments in the Secondary Market 

The instruments traded in a secondary market consist of fixed income instruments, variable income instruments, and hybrid instruments.

• Fixed income instruments

Fixed income instruments are primarily debt instruments ensuring a regular form of payment such as interests, and the principal is repaid on maturity. Examples of fixed income securities are debentures, bonds, and preference shares.

Debentures are unsecured debt instruments, i.e., not secured by collateral. Returns generated from debentures are thus dependent on the issuer’s credibility.

As for bonds, they are essentially a contract between two parties, whereby a government or company issues these financial instruments. As investors buy these bonds, it allows the issuing entity to secure a large amount of funds this way. Investors are paid interests at fixed intervals, and the principal is repaid on maturity.

Individuals owning preference shares in a company receive dividends before payment to equity shareholders. If a company faces bankruptcy, preference shareholders have the right to be paid before other shareholders.

• Variable income instruments

Investment in variable income instruments generates an effective rate of return to the investor, and various market factors determine the quantum of such return. These securities expose investors to higher risks as well as higher rewards. Examples of variable income instruments are equity and derivatives.

Equity shares are instruments that allow a company to raise finance. Also, investors holding equity shares have a claim over net profits of a company along with its assets if it goes into liquidation.

As for derivatives, they are a contractual obligation between two different parties involving pay-off for stipulated performance.

• Hybrid instruments

Two or more different financial instruments are combined to form hybrid instruments. Convertible debentures serve as an example of hybrid instruments.

Types of Secondary Market

Secondary markets are primarily of two types – Stock exchanges and over-the-counter markets.

• Stock exchange

Stock exchanges are centralised platforms where securities trading take place, sans any contact between the buyer and the seller. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are examples of such platforms.

Transactions in stock exchanges are subjected to stringent regulations in securities trading. A stock exchange itself acts as a guarantor, and the counterparty risk is almost non-existent. Such a safety net is obtained via a higher transaction cost being levied on investments in the form of commission and exchange fees.

• Over-the-counter (OTC) market

Over-the-counter markets are decentralised, comprising participants engaging in trading among themselves. OTC markets retain higher counterparty risks in the absence of regulatory oversight, with the parties directly dealing with each other. Foreign exchange market (FOREX) is an example of an over-the-counter market.

In an OTC market, there exists tremendous competition in acquiring higher volume. Due to this factor, the securities’ price differs from one seller to another.

Apart from the stock exchange and OTC market, other types of secondary market include auction market and dealer market.

The former is essentially a platform for buyers and sellers to arrive at an understanding of the rate at which the securities are to be traded. The information related to pricing is put out in the public domain, including the bidding price of the offer.

Dealer market is another type of secondary market in which various dealers indicate prices of specific securities for a transaction. Foreign exchange trade and bonds are traded primarily in a dealer market.