Capital Market Institutions and Types of Capital Market Institutions

In any economy, financial institutions play an important role because all the financial dealings are handled and monitored by such institutions. The major components of financial institutions are banks, insurance companies, investment companies, consumer finance comanies and other specialized financial institutes. These institutions provide a variety of financial products and services to fulfil the varied needs of the commercial sector.

Capital Market Institutions and Types of Capital Market Institutions
Capital Market Institutions and Types of Capital Market Institutions

TYPES OF CAPITAL MARKET INSTITUTIONS:-

A) National Level Institutions

A wide variety of financial institutions have been set up at the national level. These institutions fulfill financial requirements of the entrepreneurs. They include development banks like IDBI,SIDBI,FIS,IIBL,TFCI and insurance companies like LIC,GIC,UTI; etc

1. All India Development Banks (AIDBs):- 

All India Development Banks includes those development banks which provide institutional credit not only to large and medium scale enterprises but also help in promotion and development of small scale industrial units.

Following are some of the examples of AIDBs:-

1) Industrial Development Bank Of India(IDBI)

2) Indian Finance Corporation of India (IFCI)

3) Small Industries Development Bank of India(SIDBI)

4) Industeial Investment Bank of India(IIBI)

2. Specialised Financial Institutions (SFIs):-

Specialised financial institutions are the institutions which have been set up to serve the increasing financial needs of trade and commerce in the area of venture capital, credit rating and leasing, etc. 

Following institutions are considered as SFIs in our country.

1) IFCI Venture Capital Funds Ltd (IVCF)

2)ICICI Venture Funds Ltd 

3) Tourism Finance Corporation of India Ltd. (TFCI)

3. Investment Institutions:-

Investment institutions are the most popular form of financial intermediaries, which particularly catering to the needs of small savers and investors.

Following are the investment institutions established by the Government:-

1)Life Insurance Corporation of India (LIC)

2) Unit Trust of India (UTI)

3)General Insurance Corporation of India(GIC)

B)State Level Institutions

Several financial institutions have been set up at the State level which supplement the financial assistance provided by the all india institutions. They act as a catalyst for promotion of investment and industrial development in the respective states. 

They broadly consist of_

State Financial Corporation

•SFCs plays crucial role in development of small and medium enterprise.

•SFCs provide financial assistance in various forms.

'State Industrial Development Corporations'

• It is a company registered under comapany Act, as wholly owned undertakings of the State Government.

• SIDCs promote industrial development in respective states.

Qualified Institutional Buyers

QIBs are investment institutions who buy the shares of a company on a large scale. Qualified Institutional Buyers are those institutional investors who have expertise and the financial proficiency to invest in the Capital Markets.

Regulation 2 (1) of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, Qualified Institutional Investors comprises of_

1) A mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with SEBI; 

2) A foreign portfolio investor other than Category Ill foreign portfolio investor, registered with SEBI;  

3) A public financial institution as defined in section 2 (72) of the Companies Act, 2013; 

4) A scheduled commercial bank;

5) A multilateral and bilateral development financial institution;

6) A state industrial development corporation;

7) An insurance company registered with the insurance Regulatory and Development Authority; 

8) A provident fund with minimum corpus of twenty five crore rupees;  

9) A pension fund with minimum corpus of twenty five crore rupees;  

10)National Investment Fund set up by Government of India;

11) Insurance funds set up and managed by army, navy or air force of the Union of India; 

12) Insurance funds set up and managed by the Department of Posts, India;  

13) Systemically important non-banking financial companies.

Foreign Portfolio Investor

Foreign portfolio investor means a person who satisfies the eligibility criteria prescribed under SEBI (Foreign Portfolio Investors) Regulations, 2014.

Foreign Institutional Investors and QFIs are to be merged into one category called FPI.

Categories of FPI

• Category 1 FPIs include: Government and Government - related investors such as central banks, governmental agencies, sovereign wealth funds and international or multilateral organizations or agencies.  

• Category II FPls include: 

- appropriately regulated broad based funds such as mutual funds, investment trusts, insurance / reinsurance companies;  

- appropriately regulated persons such as banks, asset management companies, investment managers / advisors, portfolio managers;  

- Broad based funds that are not appropriately regulated but whose investment manager is appropriately regulated. However, the investment manager of such broad based funds should be registered as a Category II FPI and should undertake that it shall be responsible and liable for all acts of commission and omission of all its underlying broad based funds and other deeds and things done by such broad based funds under these regulations.  

- university funds and pension funds; and 

- university - related endowments already registered with SEBI as Flls or sub accounts.

Category III FPIs include:-

- It includes all other FPIs which not eligible under category I and category II of FPIs such as endownments, charitable societies, charitable trusts, foundations, corporate bodies, trust, individuals and family offices.

Angel Fund

An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors invest online through equity crowd funding or organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.

High Net Worth Individuals

HNIs or high net worth individuals is a class of individuals who are distinguished from other retail segments based on their net wealth, assets and investable surplus. While there is no standard put forth for the classification, the definition of HNIs varies with the geographical area as well as financial markets and institutions. Though there is no specific definition, generally in the Indian context, individuals with over Rs. 2 crore investible surplus may be considered to be HNIs while those with investible wealth in the range of Rs. 25 lac - Rs. 2 crore may be considered as Emerging HNls.

Venture Capital

Venture Capital is one of the innovative financing resource for a company in which the promoter has to give up some level of ownership and control of business in exchange for capital for a limited period, say, 3-5 years. Venture Capital is generally equity investments made by Venture Capital funds, at an early stage in privately held companies, having potential to provide a high rate of return on their investments.

Pention Fund

Pension Fund means a fund established by an employer to facilitate and organize the investment of employees' retirement funds which is contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement. Pensions broadly divided into two sectors: A - Formal sector Pensions B - Informal sector Pensions Formal sector Pensions Formal sector pensions in India can be divided into three categories; viz pensions under an Act or Statute, Government pensions and voluntary pensions. 

There are three defining Acts for pensions in India.  

1. Pensions under the EPF & MP Act 1952 

2. Pensions under the Coal mines PF & MP Act 1948 

3. Gratuity under the Payment of Gratuity Act, 1972