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Capital Market is one of the significant aspect of every financial market. Hence it is necessary to study its correct meaning. Broadly speaking the capital market is a market for financial assets which have a long or indefinite maturity. Unlike money market instruments the capital market intruments become mature for the period above one year. It is an institutional arrangement to borrow and lend money for a longer period of time. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market. Capital market involves various instruments which can be used for financial transactions. Capital market provides long term debt and equity finance for the government and the corporate sector. Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded. Capital market institutions provide rupee loans, foreign exchange loans, consultancy services and underwriting.
Significance, Role or Functions of Capital Market
Like the money market capital market is also very important. It plays a significant role in the national economy. A developed, dynamic and vibrant capital market can immensely contribute for speedy economic growth and development.
Let us get acquainted with the important functions and role of the capital market. 1. Mobilization of Savings : Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. 2. Capital Formation : Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. 3. Provision of Investment Avenue : Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public. 4. Speed up Economic Growth and Development : Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure.
Unfortunately. Basically capital market transactions are related to the stock exchanges. there can be no guaranteeing how stable a business opportunity would be in a few years time. Continuous Availability of Funds : Capital market is place where the investment avenue is continuously available for long term investment. Ads and disads Capital markets. consultancy services. The resulting advantages include that innovation is driven forward in a free. 6. Thus capital market definitely plays a constructive role in the overall development of an economy. Because of this. Thus marketability in the capital market becomes easy. Service Provision : As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry. export finance. entry into capital markets needs to be carefully timed for maximum impact. commonly found in the form of stock markets. Final Glance and Conclusion on Capital Market The lack of an advanced and vibrant capital market can lead to underutilization of financial resources. There is a lot of risk for people who decide to pursue a career in investing on capital markets. capitalist economy. there is also an immense pressure to deliver goods. Volatility is another issue . underwriting services. Proper Regulation of Funds : Capital markets not only helps in fund mobilization.and with long-term investments. showcased perfectly during the credit crunch and in the various stock market crashes that have taken place in recent decades.5. etc. Failing to meet targets can result in the premature exit of many people who could have been instrumental to a business’ future success. After all. The disadvantages lie in the risks of business. have several advantages and disadvantages. 8. who could have foreseen the banking crisis and the troubles in the housing market in continental Europe? . Both buyers and seller can easily buy and sell securities as they are continuously available. These are the important functions of the capital market. and as the businesses being invested in are accountable for their performance. This money can then be used in other projects that an investor might be passionate and enthusiastic about. cutting-edge research and development in many sectors can only take place once investment has been gained through floatation on the stock market. with investors receiving dividends from successful ventures. The developed capital market also provides access to the foreign capital for domestic industry. These services help the manufacturing sector in a large spectrum. One of the obvious benefits is that both governments and normal businesses can securelong-term investments that allow for ambitious projects to take place. with goods and services provided that wouldn’t have been possible without capital markets. It can have regulation over the resources so that it can direct funds in a qualitative manner. This is a liquid market as it makes fund available on continues basis. 7. but it also helps in proper allocation of these resources.