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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
This is a liquid market as it makes fund available on continues basis. 7. etc. Continuous Availability of Funds : Capital market is place where the investment avenue is continuously available for long term investment. It includes long term and medium term loans to industry. Development Financial Institutions (DFIs) and Financial intermediaries. export finance. Thus capital market definitely plays a constructive role in the over all development of an economy. Basically capital market transactions are related to the stock exchanges. . but it also helps in proper allocation of these resources.helps in research and development. Final Glance and Conclusion on Capital Market The lack of an advanced and vibrant capital market can lead to underutilization of financial resources. Service Provision : As an important financial set up capital market provides various types of services. This classification is done on the basis of the nature of the instrument brought in the market. Both buyers and seller can easily buy and sell securities as they are continuously available. These different segments of the capital market help to develop the institution of capital market in many dimensions. underwriting services. All of these components have specific features to mention. The primary market helps to raise fresh capital in the market. Structure of Indian Capital Market with Diagram Broadly speaking the capital market is classified in to two categories. It can have regulation over the resources so that it can direct funds in a qualitative manner. The following chart will help us in understanding the organizational structure of the Indian Capital market. This helps in. The developed capital market also provides access to the foreign capital for domestic industry. In the secondary market. it can be classified into various categories such as the Government Securities market or Gilt-edged market. These are the important functions of the capital market. 5. These services help the manufacturing sector in a large spectrum. They are the Primary market (New Issues Market) and the Secondary market (Old (Existing) Issues Market). The structure of the Indian capital market has its distinct features. consultancy services. the buying and selling (trading) of capital market instruments takes place. However on the basis of the types of institutions involved in capital market. Industrial Securities market. Thus marketability in the capital market becomes easy. increasing production and productivity in economy by generation of employment and development of infrastructure. 6. Proper Regulation of Funds : Capital markets not only helps in fund mobilization.
e. Financial Intermediaries : The fourth important segment of the Indian capital market is the financial intermediaries. IDBI. Development Financial Institutions (DFIs) : This is yet another important segment of Indian capital market. They are the Bombay Stock Exchange (BSE). This market is further classified into two types such as the New Issues Market (Primary) and the Old (Existing) Issues Market (secondary). leasing finance companies. Government Securities Market : This is also known as the Gilt-edged market. However in the secondary market already existing i. venture capital companies and other financial institutions. Industrial Securities Market : This is a market for industrial securities i. This refers to the market for government and semi-government securities backed by the Reserve Bank of India (RBI). SEBI is the supreme authority governing and regulating the Capital Market of India. market for shares and debentures of the existing and new corporate firms. etc. mutual funds. This comprises various merchant banking institutions. 2. the government has set up 'Securities and Exchange Board of India' (SEBI). This trading takes place through the registered stock exchanges. 4. In primary market fresh capital is raised by companies by issuing new shares. units of mutual funds and debentures. These financial institutions provide long term finance for those purposes for which they are set up. UTI. SEBI Regulates Indian Capital Market For the smooth functioning of the capital market a proper coordination among above organizations and segments is a prerequisite. SFCs.1.e old shares and debentures are traded. ICICI. This comprises various financial institutions. These can be special purpose institutions like IFCI. These are important institutions and segments in the Indian capital market. 3. the National Stock Exchange (NSE) and Over The Counter Exchange of India (OTCEI). . IIBI. promote and direct the progress of the Indian Capital Market. In India we have three prominent stock exchanges. In order to regulate. Buying and selling of such instruments take place in this market. bonds.