Overview of Capital Market

Basically, the capital market (Capital Market) is a market for long-term financial instruments that can be bought and sold, either in the form of debt or equity capital in the form.

Understanding Capital Market under the Act No.8 of 1995, Capital Markets is an activity concerned with the public offering and trading of securities, the Public Company relating to the issuance of securities, as well as the institutions and professions related to securities.

While the Stock Exchange is the party that organizes and provides a system and a means to bring together offerings or buy and sell securities of other Parties with the purpose of securities trading between them.

The capital market has a major role for the economy of a country because the capital markets perform two functions, economic functions and financial functions. The capital market is said to have a functioning market economy because it provides a facility or vehicle that meets the interests of two parties who have excess funds (investors) and those that need funding (issur). With the capital markets are the parties who have excess funds can invest those funds in the hope of reward (return) while the issuer (in this case the company) can utilize those funds for the operation of the company. The capital market is said to have a financial function, because the capital markets provide possibilities and opportunities for reward (return) for fund owners.

 Capital Markets provides many benefits including:

• Provide a source of financing (long term) for the business while allowing optimal resource allocation.

• Provide an investment vehicle for investors while allowing diversification efforts.

• Provide a leading indicator for the country's economic trends.

• The spread of ownership of the company until the middle layers of society.

• The spread of ownership, openness and professionalism, creating a healthy business climate.

• Creating jobs / professions of interest.

• Provide an opportunity to have a healthy company and have prospects.

• Alternative investments offer potential advantages with the risks that can be calculated through the transparency, liquidity, and investment diversification.

• Fostering openness to the world business climate, providing access to social control.

• The management company with a climate of openness, encourage the use of professional management.

• Sources of funding long-term financing for the issuers.

Choose a few Market Instruments include: 

1. Equity

Instruments that will increase owner's equity capital, ie stocks. Having this type of instrument means investors become owners of the company for the capital invested. The best known instruments of this type is the stock market. There are two types of plural marketable shares, namely ordinary shares (common stock) and preferred stock (preferred stock).

• Ordinary shares (common stock).

The shareholders of this type represent ownership in the company of the capital invested. The advantage gained by this form of shareholder dividends derived from corporate profits. These shareholders have no definite guarantee of return that the company provides. If companies get the profits, then shareholders will receive dividends for the allocation set by the AGM. However, if the company is liquidated or bankrupt one day, the shareholders of this type is the most recent gain rights to the company's assets after all liabilities of the company settled and preferred shareholders are paid at par value of their securities.

Besides the advantage of the dividend, common stockholders can also benefit from the difference between the value of shares purchased by the selling value. Conversely, if stock prices decline, then you lose the so-called capital loss.

Another characteristic of common stock, other than a claim for assets the lowest compared with other components of the company, nor the maturity date or due date.

• Preferred stock (preferred stock).

Shares of this type has a hybrid nature, which means in addition to having the characteristics as a stock, also have properties such as bonds. If you own shares of this type, you will get regular payments for the stock price multiplied by the par interest rate each year (the nature of the bonds). If you type cumulative preferred stock, so if you have not received a dividend payment last year will be accumulated with the current year dividend. Other types of non-cumulative, which means you will not receive any dividends not paid the last period, while the manifold participating will receive a proportionate increase in the dividend following the increase in common stock dividends. Owners of preferred stock have the right to vote to elect directors of the company, only if the dividend is not paid for a year or more.

Preferred trait is reflected also in the treatment received when the company liquidated. These shareholders will receive payment of the price of par shares before dividends on common stockholders are paid. Because many properties of this type that resembles the stock of bonds, then classify them into several parties in fixed income.

2. Bonds

Different bonds with equity that has been described previously. Companies often take advantage of this market to seek a direct loan from investors by issuing bonds is a document stating their willingness to pay certain amount of money in the future. In addition to paying the principal loan amount of money loaned, investors, companies also must pay interest on the loan or interest coupons on a regular basis. Therefore, investors will receive interest payments in a fixed amount each period, then all debt securities issued by a company called fixed-income securities (fixed income securities).

There are several characteristics that are owned by the bonds, namely: the company issued a certificate stating the loan and the terms, having a par value that states the principal amount of such securities, the maturities, and the coupon interest rate (coupon rate) will you receive each period (3 or 6 months). The interest rates are usually given higher interest rates compared with SBI (Bank Indonesia Certificate). If the bond's interest rate equal to SBI installed, of course, investors will choose to invest in SBI which has a much smaller risk than bonds. Based on this fact, giving the bond interest rate is calculated by adding the risk premium on the interest rate basis (usually the same with SBI). Risk premium that is the attraction of bonds. The important thing to note is that the greater the interest rate bonds on offer, the greater the risk that accompanies it.

 

3. Derivatives

Derivative is a derivative form of the main securities that exist, in this stock. Derivatives are widely known in Indonesia before warrants and rights

• Warrant

Is the right to buy a stock at a predetermined price at a predetermined time anyway.

Warrants are usually issued by companies as a 'sweetener' for investors when they issue shares.

• Right

Similar to a warrant, right is also a right to buy shares at a specified price at a predetermined time. Right given to shareholders who are entitled to additional newly issued shares in the company's second offering. Differences with warrants trading rights very short period, ranging between 1-2 weeks.

Warrant price is reasonable and right that the stock market price minus exercise price. If the market price of warrants or rights greater than the fair price, meaning there is a premium paid.

  

      4.  Mutual Funds

Mutual funds are an alternative investment for the investor community, particularly the small investors and investors who do not have a lot of time and expertise to calculate the risk of their investments. Mutual Fund is designed as a means to collect funds from people who have the capital, have a desire to invest, but only have limited time and knowledge. Also Mutual Funds are also expected to enhance the role of local investors to invest in Indonesia's capital markets. Judging from its origin of the word, Mutual Funds derived from the vocabulary word 'mutual' which means' guard 'or' pet 'and the word' fund 'which means (set of) money, so mutual funds can be interpreted as' a collection of money is maintained (with to an interest) '. Generally, mutual fund is defined as container that is used to collect funds from public investors for further invested in portfolio securities by the Investment Manager.