Understanding the Spanish Stock Market and Investments
The Continuous Market
The Continuous Market is the most important and representative of all Spanish stock markets. Established in 1989, this market deals exclusively in shares. Operators communicate through a computer network that connects all members of the Spanish stock exchanges. The computer system used today is the Spanish Stock Market Interconnection System (SIBE).
The Electronic Fixed Income Market
The Electronic Fixed Income Market operates similarly to the Continuous Market, using a computer system similar to SIBE. It trades debt securities issued by public and private entities.
Issuance of Securities
The issuance of debt, both public and private, is a critical source of funding for large entities that come to the stock markets. We distinguish three essential elements:
- Issuers raise large sums of money by selling securities that represent debt.
- Investors obtain the right to collect interest and receive a refund of the capital loaned on the maturity date.
- Debt securities represent a short-, medium-, or long-term investment formula, notable for their safety.
Income from Securities
Income from securities consists of interest and dividends. However, other profitable investment opportunities can greatly exceed the income received through dividends.
Yields of Shares
Dividends are the amount corresponding to each share in the distribution of profits.
Other Income
Capital Gains: The investor realizes a capital gain when they sell their stock at a price higher than the purchase price.
Income from Debt Securities
Interest: Owners of debt securities, as lenders to the entity that issued the securities, receive interest as compensation.
Gross and Net Income
Income received by regular investors is subject to Personal Income Tax (IRPF) withholding. Therefore, the amount received by the investor (net income) is the difference between the rightful income (gross income) and the withholding that was performed.
Profitability
Profitability is the return on €100 invested.
Collective Investment Funds
A Collective Investment Fund is an equity investment made up of the contributions of many investors (shareholders) and managed by a management organization. The funds are:
- FIM: Their assets are invested in fixed income, equities, or a mix, and are less stable.
- FIAMM: They invest in assets with considerable liquidity, are less volatile, and more stable.
- Fondtesoro: Their assets are mainly invested in bonds issued by the Public Treasury.
- Funds of Funds: Invest in securities issued by other collective investment institutions.
Operation of Investment Funds
- Investors go to the fund’s depository institution, where they deposit their savings in exchange for shares.
- The fund invests the common assets in various financial products and manages the resulting portfolio.
- Investors receive regular details of their investment.
Participation and Equity
Equity is the asset value, calculated daily. Management entities use this value to perform purchase and sale operations of the shares.
Expenses Related to Investment Funds
- Subscription Fee: Payable by the individual investor to purchase shares of the fund.
- Management Fee: Applied for the management service concept.
- Refund Fee: Payable by the investor to sell shares of the fund.
- Deposit Fee: Received by the depository institution for the custody of securities belonging to the fund.
Pension Plans
Another form of collective investment. Participants enjoy tax benefits in exchange for immobilizing their savings.
Debenture loan (Empréstito): Issuance of debt by a public or private entity.