Debt Capital Markets (DCM) is a market for trading debt securities where business enterprises (companies) and governments can raise long-term funds. This includes private placement as well as organized markets and exchanges.
The debt capital markets trades in such financial instruments which pays interest. There are the bonds and several loans which act as the prime financial instrument of this market. Because of this interest factor, the debt capital markets is also known as fixed income market.
Also Explore: Debt Definition
Debt capital markets and equity market jointly makes the capital market. These markets are used by the governments and several companies for raising funds for long and short term. The trade in these markets is done through several financial instruments. Financial regulators, such as the UK’s Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties.
Debt capital is funds supplied by lenders that are part of a firm’s capital structure. Debt capital usually refers to long-term capital, specifically bonds, rather than short-term loans to be paid off within one year. If the short-term debt is continually rolled over, however, it can be considered relatively permanent and thus debt capital.
Debt capital has advantages and disadvantages over equity, the other component of a company’s capital structure. The regular interest payments for debt capital represent a cost of doing business and, unlike dividends, are tax deductible. Debt capital also enables the firm to expand its profits indefinitely, provided it can make a greater return on the debt capital than the costs of servicing it. However, unlike dividends, interest payments to bondholders must be met on time and in full. Furthermore, as debt becomes a greater part of the firm’s capital structure, a downturn in business threatens the company’s survival, as the costs of servicing debt capital mount. Financial analysts thus spend much effort trying to determine the best proportion of debt capital in a company’s capital structure.
Bonds are of several types like the government bonds, the municipal bonds, corporate bonds and many more. By investing in these bonds, the investors actually provide loan to the respective organization or to the government. These loans are provided for some fixed interest rate which the company or the organization provides to the investor at regular intervals.
The modern concept of venture capital should be grateful to General Doriot because he was the person who founded the American Research and Development Fund. This was done to provide financial assistance to the activities of developing new technologies in the US universities. At the same time, the commercial use and financial benefits from such technologies were also considered seriously. With the commercial success of the concept of venture capital, big players entered the venture capital market of United States of America. The giant companies like Xerox and General Electric played a major role in expanding the venture capital market.
The entry of these companies in this market encouraged with separate divisions to deal in the market encouraged many others. Because of these situations, the venture capital market was expanded beyond the territories of US and within a short period, it gained ground globally.
Last Updated on : 21st July 2016