7 Types of Capital Market Products, Benefits and Functions

Posted by Imam Larh on Wednesday, 2 May 2018

7 Types of Capital Market Products, Benefits and Functions.
7 Types of Capital Market Products, Benefits and Functions.
Weaccounting - Understanding Capital Market or stock exchange along with money markets that are classified as the financial market (financial market). 

The money market according to Bank Indonesia shall be defined as a sale and purchase or borrowing transaction using securities which are commonly traded under the terms of a transaction time of less than one year, whether by foreign exchange or domestic currency.

Understanding Capital Market (Capital Market)

The capital market is a shelter for financial transactions using long-term contracts.
The understanding Capital market is a party that provides and organizes systems or facilities to bring together selling and buying securities deals with the purpose of trading securities by related parties.

Product Type Capital Market 

The products (securities) of the commonly traded capital markets can be grouped into two, namely securities in the form of ownership and securities in the form of money.

Instruments (products) transacted in the capital market have a period of more than one year or term (long-term instrument). So, some products that exist in the capital market are:
Common Stock
Understanding of common stock is a sign of ownership or inclusion of individuals or entities within a company. The characteristics of a common stock are to have voting rights, a company gain a profit, a dividend in profits and a right to share business property if the company turns out to be bankrupt after the company's liabilities are settled.

Saah one type of common stock, namely Blue Shares (blue chips) is issued by large and famous companies that have long demonstrated the ability to earn profits and dividend payments.
Right Issue
Understanding Right Issue is the right to buy new shares issued by issuers for investors. Due to the limited rights, the related investor is not required to buy it. Compared to dividends that are automatically accepted by shareholders.

Benefits (returns) received by the buyer Right Issue is the same as the share reward that is dividend or capital gain.

The risk of right issue investment faced by investors is the loss of buying and selling of shares (capital loss) or decreasing of dividend per share.
Bonds (Bonds)
Understanding bonds is a letter of recognition of debt from the company with the ability to return the principal and interest thereon periodically or at a predetermined time.

Benefits of bonds in the form of interest (known as a coupon) which can be paid annually, semester and quarter. The obligation is also possible to get capital gains like stocks. Bonds have binding agreements between both parties namely side lender (issuer of bonds) and the recipient of the loan.

The bond issuer will receive a loan from the bondholder with the prescribed rules such as repayment maturity, interest paid and the size of the principal.
Preferent Shares or Preferred Stock

Preferred shares are shares that grant special rights or priority rights of choice to the holder. What rights are they? Such as the right to exchange shares with common stock, the right to influence management in the nomination of the board, the right to take precedence get the dividend, the right to get dividends in the fixed amount and less risk than ordinary shares. 

In other words, Preferences stock is a combination of bonds and common stock, meaning that besides having characteristics such as bonds, on the other hand also has the characteristics of the common stock.
Warrant
Warrants are the right to purchase common stock at a specified time and price. Warrants are usually sold in conjunction with other securities, for example, bonds and stocks. The purpose of the warrants is to attract investors to buy shares or bonds issued by issuers. Of course investors will be happy to invest their funds in the bank if the state of high interest rates.
Mutual Funds
Mutual funds are a place to raise funds from people who have capital and subsequently by investment managers will be invested in the form of securities collection (securities portfolio).

The profit from mutual fund investment will be obtained from three main sources of dividend, Net Asset Value (NAV) and capital gain.

Net Asset Value (NAV) is the total ratio of the investment value made by the investment manager and the total volume of the mutual funds it publishes.

Trading of capital market products in Indonesia is implemented in two cities: Jakarta (Jakarta Stock Exchange) and Surabaya (Surabaya Stock Exchange). Capital market products sold on the stock exchange must already be registered and meet applicable requirements.

Capital Market Benefits

After knowing about the capital market product, then what is the benefit of the capital market? The following are the roles and benefits of the capital market, including:

1. Capital Market is an Efficient Fund Allocation

If you have the funds and want to invest, can be through the purchase of securities offered by the company or traded in the capital market. Conversely, if the company wants to get funds is to offer long-term financial instruments through the capital market.


2. Capital Market as an Investment Alternative

Capital markets can be used to profit with certain risks. 

3. The capital market can allow for investors to have a healthy company and with good prospects.

The ownership of such a good company is owned by the public because it will encourage the development of the company to be more transparent.

4. Implementation of Company Management Professional and Transparent

Companies will be encouraged to implement management professionally with community participation in company ownership. In addition, it can create a "Good Corporate Governance" condition, efficient and profit-oriented for investors.

5. Increased National Economic Activities
The national economy can be more advanced because the capital market will facilitate companies in acquiring funds as capital to develop businesses that will then create widespread employment opportunities and increase tax revenues for the government.

Thus the 7 Types of Capital Market Products, Benefits and Functions. Hopefully useful for all readers. Thank you so much for your visit.

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