The Financial Market in India can be understood as a place where financial

products and services are bought and sold regularly. It deals in the purchase and
sale of different types of investments, financial services, loans, etc. The
financial market in India can be divided into the money market and the capital
market.

Some of the features of the financial market are as follows:

o Financial market implies any marketplace where the trading of

securities takes place.
o There can be several kinds of financial markets including (but not
limited to) forex, bond markets, stock, money, etc.
o Financial markets may include securities or assets that are either
listed on regulated exchanges or over-the-counter (OTC).
o The economic development of the country is based on the financial
markets. If the markets fail, it can result in recession and
unemployment as well.
o Financial markets bridge the gap between borrowers and lenders.
They bring together individuals that have surplus funds and those
who need funds so that there can be an easy transfer of funds
between them. The transfer of funds takes place through various
kinds of financial instruments operating in the financial markets.

Structure of Financial Market in India

 The financial market in India can be broadly divided into two main
components, that is, the money market and the capital market. Wherein,
the capital market is further divided into primary and secondary markets.

Money Market
 The money market acts as a marketplace for short-term borrowing and
lending. At the wholesale level, it involves large-volume transactions
between traders and institutions. At the retail level, the money market
involves mutual funds bought by individual investors and accounts
opened by bank customers.
 The assets traded in the money market are risk-free and highly liquid. As
the maturity period is less, the risk of volatility is low and the returns are
low as well.
 Common examples of instruments traded in the money market are
treasury bills, commercial papers, certificates of deposits, bankers’
acceptance, etc.
Capital Market

 As opposed to the money market, capital markets deal in long-term

securities. The securities that have a maturity period of more than a year
are traded in the capital market. Subsequently, the market trades in both
debt as well as equity-oriented securities.
 Participants of the capital market include Foreign Institutional Investors
(FIIs), financial institutions, NRIs, individuals, and so on. The capital
market is further divided into Primary Market and Secondary Market.
The points of difference between the two are as follows:

Points of
Primary Market Differences Secondary Market
New Issue Market (NIM) Also known as After Issue Market (AIM)
Buying or selling of
securities between the
investors without any
Origination, underwriting, involvement of the issuing
and distribution Functions company
Stocks are issued for the first Role / Stocks are traded once
time Importance issued
Investment Banks Intermediaries Brokers
Bought and purchased
Directly by the companies to Sale of amongst investors and
the investors Securities traders
Fixed at par Changes depending upon the
Price of Shares value supply and demand of shares
IPO (Initial Public Offering),
bonus and right share issues,
private placement, Stocks, bonds, derivatives,
preferential allotment, etc. Examples etc.

Other types of Financial Markets in India

 The other types of the financial market in India include Commodity

Market, Derivatives Market, OTC (Over-the-Counter) Market, Foreign
 Exchange Market, Bond Market, and Banking Market. Below is the
detailed meaning of the same:

Other types of
financial
markets Meaning

Commodity It deals in the trading of commodities like pulses, gold,

Market metals, silver, oil, grains, etc.

Derivatives
Market A marketplace where futures and options are traded

Deals with companies that are generally small and can be

OTC Market traded cheaply without any regulations.

 It deals in the trading of currencies of different

countries.
 It is considered the most liquid financial market as
currencies can be sold and purchased easily.
Foreign Exchange  The fluctuating rate of currencies benefits the
Market traders who are eager to derive profits by selling at a
higher rate and buying at a lower one.
 It facilitates the trading of government and corporate
bonds that are offered by the companies and the
government to raise capital.
 These bonds are debt instruments having a fixed rate
of return.
Bond Market  They also have a specific tenure, thus the bond
market lacks liquidity.
It consists of banks and non-banking financial entities that
provide various kinds of banking services including
Banking Market collection of deposits, offering loans, and so on.

Functions of Financial Markets

The various services offered by the financial markets in India are as follows:
 Provides a platform for the buyers and sellers for trading different types
of financial products
 Financial market helps determine the price of the financial instruments
that are traded in it. The price is determined by the demand and supply of
the instruments.
 Helps investors by providing liquidity at the time of selling off the
investments for funds
 Facilitates buyers to acquire funds when they need financial assistance
 The financial market in India influences the economic growth of the
country
 It also helps mobilize funds from investors to borrowers