Features of Capital Market

Features Of Capital Market

The main feature of Capital markets is that it provides a financial system where individuals, institutions, and governments can access mid to long term funding by trading a range of financial assets, such as stocks and bonds. 

Content:

Capital Market Meaning

A capital market is an important aspect of the broader financial system where individuals, institutions like banks and investment firms, and governments can raise long-term funds by participating in the buying and selling of financial securities. These securities typically include stocks and bonds. 

Features Of Indian Capital Market

The main feature of the Indian capital market is that it is a connecting link between investors and borrowers offering mid to long-term investments. It is regulated by the Securities and Exchange Board of India (SEBI), which ensures transparency and investor protection.

  • It offers a diverse range of financial instruments such as stocks, bonds, derivatives, and mutual funds, helping investors to build a diverse portfolio.
  • India has many retail investors, contributing to the market’s vibrancy. The Major stock exchanges in India include the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
  • The Indian government also participates in the capital market through various instruments like government bonds and disinvestment of public sector enterprises.
  • Being influenced by various factors, including economic developments, government policies, and global events, it can be volatile at times. 

Difference Between Primary And Secondary Capital Market

The main difference between primary and secondary capital markets is that primary capital markets are where new securities are issued and sold for the first time to raise capital.  Secondary capital market, on the other hand, is where existing securities are bought and sold among investors, hence offering liquidity to investors.

AspectPrimary Capital MarketSecondary Capital Market
ParticipantsIssuers (companies or governments), investment banks, underwriters, and investors.Investors, brokers, and stock exchanges.
TransactionsInvolves processes like Initial Public Offerings (IPOs), private placements, and rights issues. Involves the buying and selling of previously issued securities on stock exchanges or over-the-counter markets.
RiskPrices are often determined by the issuer without any trading history and cause a higher degree of risk for investors.Investors face market risk influenced by supply and demand, company performance and economic conditions.
Purpose of FundsFunds raised go directly to the issuer, enabling them to meet their financing needs.Funds exchanged go to the selling investor; the issuer does not receive any funds from these transactions.

Importance Of Capital Market

The importance of the capital market lies in its role as an engine of economic growth and a source of investment and wealth creation, benefiting both businesses and individuals while contributing to overall economic development.

  • Capital markets provide a platform for businesses, governments, and organizations to raise long-term funds through the issuance of stocks, bonds, and other financial instruments.
  • The investments in the capital market can serve as a means of wealth creation, retirement planning, and financial security.
  • The secondary market within the capital market provides liquidity, enabling investors to buy and sell securities easily. 
  • A well-functioning capital market contributes to economic development by fostering entrepreneurship, job creation, and infrastructure development. 
  • Capital markets attract foreign investments, which provides access to international capital.
  • To access capital markets, companies must meet disclosure and governance standards which in turn promote transparency and accountability.

Functions Of Capital Market

The main function of the capital market is to facilitate the flow of savings and investments by providing a platform for businesses, governments, and organisations to raise long-term capital. This capital is crucial for funding new projects, expansion, and innovation.

Other such functions include:

  • The secondary market within the capital market provides liquidity which  ensures that investors can convert their investments into cash when needed.
  • Capital markets determine the market value of securities through the collective assessment of supply and demand. 
  • The wide range of financial instruments in the capital market helps investors to diversify their portfolio and reduce risk.
  • The capital market reduces the burden on government budgets and promotes infrastructure development, healthcare, and education.

To understand the topic and get more information, please read the related stock market articles below.

To understand the topic and get more information, please read the related stock market articles below.

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Features Of Indian Capital Market – Quick Summary

  • Capital markets provide a platform to individuals, institutions, and governments to access long-term funding through securities like stocks and bonds. They offer liquidity in the secondary market for easy trading of financial instruments.
  • Capital markets provide diverse investment options with varying risks and returns.
  • In India, the capital market is regulated by SEBI, offering diverse financial instruments, including stocks, bonds, and derivatives, and attracting retail investors.
  • The primary market is for new security issuances, while the secondary market involves trading existing securities.
  • The capital market is vital for capital formation, wealth creation, economic growth, and resource allocation.
  • Experience high leverages in the capital market with Alice Blue. Trade ₹50,000 worth of stocks with just ₹10,000 capital through our Margin Trading Facility.

Features Of Capital Market – FAQs  

What are the features of the capital market?

Features of the capital market are as follows:

  • It facilitates long-term funding through securities like stocks and bonds.
  • The returns on investments are on the higher end.
  • It has diverse investment options and government participation. 

Who Controls The Capital Market In India?

The Securities and Exchange Board of India (SEBI) is the regulatory authority responsible for controlling and regulating the capital market in India. It oversees market operations and enforces regulations to promote transparency in the Indian capital market.

What are the 4 main functions of the capital market?

The four main functions of the capital market are: 

  1. Maintaining the flow of savings and investments by providing a platform to raise long-term capital. 
  2. Offering a secondary market for easy buying and selling of existing securities. 
  3. Determining the market value of securities through the collective assessment of supply and demand.
  4. Allocating funds and promoting productive investments and supporting projects with growth potential.

What are the objectives of the capital market?

The main objectives of the capital market are to raise long-term capital, provide a platform for wealth creation, ensure transparency and investor protection, and contribute to overall financial stability by facilitating investment and liquidity.

What are the types of capital markets?

There are two types of capital markets. The primary market where new securities are issued and sold for the first time, and the secondary market where existing securities are bought and sold among investors. 

What is the nature of the capital market?

The nature of the capital market is to facilitate the raising of funds over extended periods, typically years or decades. It operates as a regulated financial system, providing a platform for the issuance and trading of securities like stocks and bonds.

What is the structure of the capital market?

The capital market comprises the primary market, where securities are issued, and the secondary market, where they are traded. It includes stocks, bonds, derivatives, and commodities, all regulated for transparency.

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:

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Difference between Futures and Optionsdifference between over subscription and under subscription
What is an ETF?what is interim dividend
Stock Market AnalysisAnchor Investor Meaning
Difference between FDI and FIIQualified Institutional Buyer
Structure Of Mutual FundsIPO Grading
Best Auto Sector Stocks in IndiaCrude Oil Mini
Limit OrderSensex vs Nifty
BTST Tradingroce meaning in stock market
How to Become a Sub Broker?Commodity Account Opening
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