A capital market is a part of the financial system. Its principal purpose is to increase financial resources and enable the more efficient use of these resources. A developed capital market increases the possibilities of business financing and has a positive impact on economic growth by lowering capital costs and improving the financing structure and redistribution of resources.
A financial instrument is a legal arrangement by which its holder acquires the right to money or another financial instrument under pre-determined conditions. Based on a contractual relationship, a financial instrument becomes a financial asset on the one hand and a financial liability on the other.
The most common financial instruments include the following:
- transferable securities, such as shares and bonds,
- money market instruments such as treasury bills, certificates of deposit and others,
- units of collective investment undertakings such as mutual and umbrella funds,
- financial derivative instruments, such as options, futures, swaps, financial contracts for differences and others,
- emission coupons.
The original purpose of issuing financial instruments was to raise capital to finance projects, making equity (shares) and debt (bonds) financial instruments more recognisable in practice. Since each group of financial instruments has several subgroups, opportunities and risks should be examined before investing in any of them, because each has their own unique characteristics and form.
A comprehensive list of financial instruments that is continuously updated provides access to capital and its efficient flow among investors.
An investment fund constitutes co-owned property of its investors. When an investment fund is not a separate legal entity, it is managed by a registered management company or an alternative investment fund manager.
In Slovenia there are:
- collective investment undertakings for investments in transferable securities: mutual and umbrella funds,
- alternative investment funds that raise capital from the public (alternative investment fund, alternative umbrella fund and investment company) or are intended for professional investors.
Assets of an investment fund are most frequently divided into equal basic elements called fund points or fund units. A portfolio of an investment fund consists of different securities (shares, bonds) and other financial instruments, depending on the basic investment form of the fund (for example: equity, bond, mixed, money market fund and absolute return fund) described in its prospectus.
Investment funds implement their investment strategy following the principle of diversification of risks with fund assets based on investor payments. Any payment is converted into fund units assigned. An investor making a payment buys a certain number of fund units that has a certain value and changes over time.
Payment into the fund is subject to an entry commission that varies between funds. There are also exit commissions charged at upon payout.
Any person considering an investment in investment funds must acquire enough information to assess whether an investment in a desired investment fund is appropriate. They should become familiar with the risks to be able to choose an appropriate provider licensed by the Securities Market Agency.
Basic characteristics of investment funds are outlined in the brochure Successful saving in investment funds (in Slovene language only) issued by the Slovene Consumers’ Association and the Slovenian Investment Fund Association – GIZ. They provide general information and advice on saving in mutual funds, which is, however, not considered as investment advice.
The Securities Market Agency keeps different registers of issued licences for providing investment services and transactions, investment fund management services, alternative investment funds managers and dependent brokers.
The protection of investors in capital markets is overseen by the supervisory bodies of the financial system, who also have powers to investigate and impose sanctions in order to detect, deter and prevent breaches of applicable rules. These bodies are the Securities Securities Market Agency, the Insurance Insurance Supervision Agency and the Bank of Slovenia. They are independent and autonomous in their work.