Capital Markets

Capital Market is one of the significant aspect of every financial market. Capital Market is a market for financial assets which have a long or indefinite maturity. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. A capital market is a market for securities (debt or equity), where business enterprises companies and government can raise long term funds. Money is provided for periods longer than a year. The capital market includes the stock market (equity) and the bond market (debt)

            Functions and role of the Capital Market

1. Speed up Economic Growth and Development: 

Capital Market enhances production and productivity in the national economy. It makes funds available for long period of time. It helps in research and development

2. Service Provisions:

Capital Market provides various types of services. It includes long term and medium term loans to industry, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum.

3. Proper Regulations Of Funds:

Capital Markets not only helps in liquidity, but it also helps in proper allocation of these resources. It can direct funds in a qualitative manner.

4. Capital Formation:

Capital Market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. It generates savings. The savings are made available to various segments such as agriculture, industry etc. This helps in increasing capital formation.

Capital Markets can be classified as:

1. Primary Markets

2. Secondary Markets

Primary Market:

Primary Market is a market to raise money from public through IPOs (Initial Public Offerings). Companies need money to expand their businesses and public helps the company by subscribing in the shares offered by the company. By investing in the share capital of the company, investors become part owners of the company. Primary market is also known as "new issue market" (NIM).

              Features of Primary Market

The primary market is the market where the securities are sold for the first time. The securities are issued by the company directly to investors. The primary market performs the crucial function of facilitating capital formation in the economy. The financial assets sold can only be redeemed by the original holder.

Secondary Market:

Secondary Market is vital to an efficient and modern capital market. The secondary market is simply a place where existing securities are bought and sold. The secondary market is further divided into equity and debt markets. Stocks are traded in the equity market, while corporate bonds are traded n debt market.