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.
- Capital Market Meaning
- Features Of Indian Capital Market
- Difference Between Primary And Secondary Capital Market
- Importance Of Capital Market
- Functions Of Capital Market
- Features Of Indian Capital Market – Quick Summary
- Features Of Capital Market – FAQs
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.
|Aspect||Primary Capital Market||Secondary Capital Market|
|Participants||Issuers (companies or governments), investment banks, underwriters, and investors.||Investors, brokers, and stock exchanges.|
|Transactions||Involves 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.|
|Risk||Prices 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 Funds||Funds 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.
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.
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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:
- Maintaining the flow of savings and investments by providing a platform to raise long-term capital.
- Offering a secondary market for easy buying and selling of existing securities.
- Determining the market value of securities through the collective assessment of supply and demand.
- 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.