Equity and Debt Markets an overview
Thursday,17 November 2022 04:17 PM IST
It is necessary to understand the difference between Equity markets and Debt markets. The debt and equity market are terms you should understand. For instance, in 2019, Indian companies accumulated a total of Rs. 8.68 lakh crore from domestic and overseas markets; up 20 percent from 2018. Out of the total Rs. 8.68 lakh crore, Rs. 6.2 lakh crore came from the debt market while Rs. 1.25 lakh crore came from equity markets. In comparison, in 2018, firms had raised Rs. 7.25 lakh crore in total. Nearly Rs. 6 lakh crore came through debt markets, while Rs. 79,300 crore came from equities.
Debt market and equity market are broad terms for two categories of investment that are either bought or sold. The debt market is the market where debt instruments are traded. What are debt instruments? Debt Instruments are assets that require a fixed payment to the holder, usually with interest. Examples of debt instruments are bonds either government or corporate and mortgages.
The equity market often called as the stock market is the market for trading equity instruments. “Stocks are securities that are a claim on the earnings and assets of a corporation”. An example of an equity instrument could be common stock shares, like those traded on the New York Stock Exchange, Bombay Stock Exchange or Nifty.
Investments in debt securities typically involve less risk than equity investments and offer a lower potential return on investment. Debt investments by nature does not alter in price than stocks. Even if a company is liquidated, bondholders are the first to be paid.
Bonds are the most public form of debt investment. These are issued by corporations or by the government to raise capital for their operations and generally carry a fixed interest rate. Most are unsecured but are issued with a rating by one of several agencies such as Moody's to indicate the likely integrity of the issuer.