Capital Market is a market for medium and long-term financial securities and instruments. It is a market where financial securities like bonds, stocks and so on are bought and sold. Both individuals and institutions are participants in the Capital Markets.
The surplus funds are channelized to financial, government and government institutions. Capital Market puts surplus funds to productive use.
A developed and dynamic Capital Market contributes to speedy economic growth and development. So, Capital Market has a great impact on the economy of a country.
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The Capital Market deals in financial instruments like:
Following are the main features of the Capital Market:
The capital market links savers with the borrowers of funds. It routes money from savers to entrepreneurial borrowers.
Capital Market is a market for medium and long-term financial instruments. It helps in raising long-term funds. Through this market, Corporates, industrial Organizations, financial institutions and so on get access to long-term funds from both domestic and foreign markets.
Capital Market doesn’t deal with short-term financial instruments like Banker’s Acceptance, Certificate of Deposits and Commercial Paper.
Capital Market operates with the help of intermediaries like brokers, underwriters, merchant bankers, sub-brokers, collection bankers and so on. These intermediaries are important elements of a capital market.
Capital Market is a determinant of the rate of capital formation in an economy as it mobilizes funds. Capital Formation is the net addition to the existing stock of an economy’s capital.
SEE ALSO: Loan Against Property Interest Rates
Capital Market trades in both marketable and non-marketable securities. Marketable securities are securities that can be transferred e.g. Shares, Debentures, and so on. On the other hand, non-marketable securities are those which cannot be transferred e.g. Term Deposits, Loans and Advances.
Capital Market has a wide variety of investors. It comprises both individuals like general public and institutional investors like mutual funds, LIC, and so on.
Capital Market instruments are liquid. Investors can sell securities as and when needed and get cash.
Foreign Investors, both Individuals and Institutions, and Non-Resident Indians can also invest in the Indian securities market.
An over-the-counter market (OTC) are financial instruments like currencies and stocks which are traded directly between two parties.
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