Features of Capital Market

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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Features of Capital Market

Capital Market Instruments:

The Capital Market deals in financial instruments like:

1. Equity Shares
2. Preference Shares
3. Debentures
4. Bonds
5. Mutual Funds
6. Public deposits
7. Derivatives

Classifications of the Capital Market:

1. Capital Market is further classified into two markets, namely, primary markets and secondary markets. While, primary markets deal in new issues of stocks and other securities, secondary markets trade in existing or previously-issued securities.
2. Capital Markets are also classified based on the nature of the securities traded, i.e. stock market and bond market.

Features of Capital Market in India:

Following are the main features of the Capital Market:

1. Connects savers and entrepreneurial borrowers:

The capital market links savers with the borrowers of funds. It routes money from savers to entrepreneurial borrowers.

2. Deals in medium and long-term investments:

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.

3. Presence of intermediaries:

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.

4. Determinant of rate of capital formation:

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.

5. Capital Markets are regulated by government rules and regulations:

Capital Market operates freely. However, it is regulated by government rules, regulations and policies. For example, BSE and NSE are regulated by SEBI, a government body.

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6. Deals in marketable and non-marketable securities:

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.

7. Variety of investors:

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.

8. Provides liquidity:

Capital Market instruments are liquid. Investors can sell securities as and when needed and get cash.

9. Foreign Investors:

Foreign Investors, both Individuals and Institutions, and Non-Resident Indians can also invest in the Indian securities market.

10. Over-the-counter 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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